Oxford Industries, Inc. (OXM) Earnings

Management highlights

- **Overall Quarterly Result**: Q1 sales were in-line with management expectations, and adjusted earnings beat forecasts primarily due to stronger-than-expected gross margin. Gross margin absorbed an $11 million year-over-year increase in tariff costs, which would have driven year-over-year margin and earnings growth absent this headwind. - **Brand Portfolio Performance & Strategic Actions**: - Tommy Bahama delivered strong results, led by mid-single-digit DTC growth with particular strength in women's fashion categories (women's DTC up 7.5% Y/Y), improved assortment balance and core product execution. 30% of e-commerce orders now include both men's and women's items, up from 25% last year, showing improved cross-gender selling success. The Western U.S. region has been a particularly strong geographic performer after years of lagging. - Lilly Pulitzer underperformed expectations due to self-identified execution and merchandising issues: under-inventory at entry price points, over-reliance on vintage prints that appeal less to new customers, and an over-emphasis on niche novelty items that lack versatility for cost-conscious consumers. Management notes the issues are addressable: marketing and promotional adjustments are already in motion, while product assortment fixes will roll out with the existing product development timeline. The brand retains strong customer equity. - Johnny Was continues to progress on its turnaround plan, with improved gross margin from tighter inventory buying, reduced promotional activity, and store portfolio rationalization (5 underperforming locations closed in Q1). DTC performance is in-line with expectations, and the brand is on track to see sales inflection in the second half of FY26. - Emerging brands continue to deliver strong, disciplined growth that adds diversity and momentum to the overall portfolio. - **Operational Infrastructure**: The new Lyons, Georgia Distribution Center transition is ongoing, with 4 of 7 brands moved as of Q1; all brands are expected to be transitioned by end of July/early August 2025. The ramp-up is incurring expected initial transition costs, but management expects it to become a long-term competitive advantage for the growing DTC business.

Guidance

- **Sales Guidance**: Management narrowed the full year 2026 net sales guidance range to $1.475 billion to $1.505 billion (flat to up 2% compared to FY25 actual sales of $1.478 billion), lowering the top end of the prior range to account for consumer demand deceleration that began in late April and continued into May/early June, plus ongoing softness at Lilly Pulitzer. Full year comparable sales are expected to range from slightly negative to slightly positive, down from prior guidance of flat to low single-digit positive. For Q2 FY26, comparable sales are expected to be low single-digit negative to flat, with total net sales expected between $380 million and $400 million. Full year sales are expected to improve in the second half as Lilly Pulitzer fixes roll out and the Johnny Was turnaround progresses. - **Gross Margin Guidance**: Full year gross margin is expected to increase approximately 100 basis points compared to FY25, with 100 to 200 basis points of expansion expected in Q2, Q3, and Q4. The expansion is driven by lower assumed tariff rates, completed sourcing shifts, updated pricing architecture, and a higher mix of DTC sales. Guidance does not include any benefit from potential future tariff refunds. - **EPS Guidance**: Management tightened the full year adjusted EPS guidance range to $2.30 to $2.70 (compared to FY25 actual adjusted EPS of $2.11), raising the lower bound of the prior range due to lower expected tariff costs and disciplined expense management. Q2 adjusted EPS is expected between $1.20 and $1.40, compared to $1.26 in Q2 FY25. - **Capital Expenditure Guidance**: Full year FY26 capital expenditures are expected to be approximately $60 million, down from $108 million in FY25, with remaining spend allocated to the Lyons Distribution Center and new brick-and-mortar locations.

Segment performance

Consolidated net sales for Q1 FY26 were $391 million, a slight decrease from $393 million in Q1 FY25, with total comparable sales down 2% (retail and e-commerce both down 2%, wholesale down 5%). - **Tommy Bahama**: Total sales increased year-over-year, driven by mid-single-digit positive comparable sales in direct-to-consumer (DTC) channels, partially offset by a wholesale sales decline. Food and beverage sales for the brand increased 14% due to new non-comparable locations. It is the company's largest brand, contributing the majority of total consolidated revenue. - **Lilly Pulitzer**: Overall sales declined with low-teens negative comparable sales, led by significant decreases in the e-commerce channel. Soft performance weighed on the company's overall consolidated results. - **Johnny Was**: Overall sales declined, driven by a large wholesale decline (exposed to the struggling specialty store market, plus reduced sales to impacted Saks Global/Neiman Marcus) and mid-single-digit negative DTC comparable sales. Gross margin increased on improved inventory and promotional discipline. - **Emerging Brands (Beaufort Bonnet Company, Duck Head)**: Delivered low double-digit year-over-year sales growth, with higher inventory to support this expansion.

Risks & headwinds

- Consumer discretionary spending remains under pressure from ongoing macroeconomic uncertainty, geopolitical conflicts, elevated energy prices, and trade policy/tariff uncertainty, leading to cautious, highly selective consumer behavior. - Tariff policy remains highly uncertain: current 10% rates are set to expire in July 2025, and any return to higher tariff rates would have limited impact on FY26 results (fall inventory is already sourced at 10% rates) but would create headwinds for future fiscal periods. - The Lyons Distribution Center transition has expected initial startup costs and operational complexities during the ramp-up period. - Wholesale exposure to the struggling specialty retail sector and ongoing retail bankruptcies creates top-line pressure, particularly for Johnny Was. - Product development and merchandising missteps at Lilly Pulitzer will take time to correct, creating near-term sales headwinds for the brand and the overall company.

Analyst Q&A

• Q: How much of the recent demand deceleration is due to the Father's Day timing shift versus actual softening in underlying consumer demand? What does the underlying trend look like after normalizing for timing? /

  A: Management built low single-digit negative comparable sales into Q2 guidance, and current trends place the company toward the lower end of that range. After the Father's Day shift passes, management expects to land within the guided range of flat to low single-digit negative comps, with a modest pickup in trends following the holiday. Current tracking remains consistent with this outlook.

• Q: What is driving Tommy Bahama's recent strength, and what specific issues caused Lilly Pulitzer's underperformance, and what is the timeline for correcting Lilly's issues? /

  A: Tommy Bahama's strength was led by men's core product improvements and even stronger growth in women's fashion categories, which management views as a long-term positive growth driver for the brand. For Lilly Pulitzer, issues include under-inventory at entry price points, over-reliance on vintage prints that appeal less to new customers, and an overabundance of high-priced, low-versatility novelty items that are less popular with cautious consumers. Marketing and promotional fixes are already being implemented, but full product assortment corrections will follow the existing product development timeline, with improvements expected to build through the second half of the year.

• Q: What is the structural impact of recent sourcing changes on gross margin, and what is promotional planning for the balance of the year? Have consumers pushed back on recent price increases? /

  A: Completed sourcing shifts and price increases on new product have created structural gross margin improvements, with Tommy Bahama seeing particularly strong full-price selling. Promotional plans will see a modest increase for Lilly Pulitzer to address near-term softness, reduced promotion at Johnny Was as part of its turnaround, and steady normal promotional cadence at Tommy Bahama, with no drastic change to overall company promotional activity. There has been no direct consumer pushback on price increases, but total units sold are down slightly, which management attributes broadly to overall consumer caution rather than mispricing.

• Q: When can Johnny Was be expected to return to positive comparable sales growth, and what will be done with any tariff refund proceeds? /

  A: Management expects Johnny Was to return to positive comparable sales growth in the second half of FY26, as product assortment changes (including more core essentials to balance the brand's signature prints) that were planned during the turnaround will hit shelves in the second half. Any proceeds from tariff refunds will be used to pay down outstanding corporate debt, which will reduce the company's interest expense and improve balance sheet health.