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  • 1. Marianna Malaspina, July 2008 Oxford Industries - OXM research report
  • 2. Company data :
    • Company: OXM - Oxford Industries
    • Capitalization: 303.5M
    • Dividend: Quarterly
    • Most recent dividend will be paid on 8/1/08 and will be the 193rd consecutive dividend since company went public in 1960.
    • Product: Apparel/ Accessories
    • Established in: 1942; went public in 1960.
    • Stock price as of 7/21/08: $21.01
    • Current Dividend Yield: 0. 86% quarterly
  • 3. Main textile and apparel industries drivers:
    • General economic growth (GDP) see table 1-A
    • Credit availability see table 1-B
    • Personal Disposable Income see table 1-C
    • Clothing Retail prices*
    • Population Access to Internet for online buying which is highly correlated (R2 = .85) to GDP
    • Presence of barriers to import/export
    • * We do not have any series of data regarding a Consumer Price Index specific for Apparel over the decade considered, however, there are various studies showing a deflation of these prices over the past decade, mainly due to the decentralization of manufacturing to emerging countries (China, Brazil, India). This decrease in fact "frees" disposable income, which, as we have seen, is a strong driver of sales increase in the industry. The factors listed above are the main industry drivers: as clothing is a basic need, general industry demand will never disappear - as for other industries such as traditional music media, books, typewriters, etc. The product, because of its function, does not lend itself to structural modifications or innovations, although within specific market sub-segments demand may vary substantially depending on age, income bracket, life-style. More about this when we will analyze the specific segment of Oxford Industries.
  • 4. Industry overview:
    • About 15,000 companies manufacture clothing in the USA, with combined annual revenue of about 30 Billion. The industry is relatively fragmented: HHI index = 1,500. Some plants in the industry have 500 workers and annual sales of 50 Millions, but most manufacturers operates a single plant with fewer then 50 employees and annual revenue under 5 Million. For lack of data, it is not possible at this stage to quantify the percentage of Oxford's revenue due to a) manufacturing for external clients as opposed to retailing in their brand stores b) their clothing as opposed to other categories of products (some of their brands market also home furnishing as part of the brand life style concept). Based on their 2007 revenues of $ 1,129,000,000 the market share on 30B is 3.7%, but do the fragmentation of the market, this seems unlikely.
  • 5. Competition landscape:
      • Demand is largely determined by consumer tastes and the comparative costs of manufacture in the US and overseas. The profitability is driven by operation efficiency and the ability to secure contracts with clothing marketers. Small companies can compete effectively with large ones by specializing in a particular type of apparel manufacture. There are few economies of scale in manufacture, because of the high labor content of most apparel. The industry is labor intensive, average annual revenue per production worker is about $ 125,000.
      • World wide, especially as a result of globalization and the possibility to outsource to low labour cost countries, the clothing industry is very competitive and relatively fragmented among several major groups both at retail (The Limited, Saks Fifth Avenue, El Cortes Ingles, Nordstrom, Harrod's, etc) and at wholesale level levels with groups which are strongly verticalized (H&M, Inditex/Zara, Bebe Stores, etc). As a consumer product, the market is typically segmented, based on the affluency of its customers, into mass (VF Corp) , bridge and luxury (LVMH). Table 2.1 indicates some of Oxford's closest competitors, although it is difficult to find a perfect comparison match, as all these companies differ in the mix of their products, strategies and various strategic units.
  • 6. Competitive landscape – continuation.
    • The clothing industry is a mature sector, whose growth is highly correlated with
    • GPI. Margins at retail are relatively low - always depending on the segment
    • considered - and earnings are more and more driven by inventory turn over (see
    • Zara 15 days production/ distribution cycle, which has revolutionized the industry
    • in the last 15 years), by use of adequate technology to support the distribution
    • chain in the most efficient and cost effective way and by a sgtrong focus on style
    • trends, which have a very short life span. The barriers to the entry per se are low:
    • the product does not require rare know-how and it is not capital intensive. The
    • main barrier to the entry is the presence of groups which are very strong and who
    • have created solid "umbrella effects". So, if entering the market may be easy,
    • running a profitable business over the long run is difficult, due to the maturity of
    • the market and to the low margins referred to above.
  • 7. Competitive landscape – continuation.
    • In the particular case of Oxford, about 60% of their revenue comes from their private label
    • business, which on one side relieves the company of any marketing and distribution activity,
    • but on the other subtracts control of the product marketing and distribution and leaves the
    • company dependent on its customer ability to run these same activities in a successful way
    • which may assure continuity. Risks of disruptions of the Companys' operations could
    • materialize in the event of disruptions in the global transportation network including
    • strikes and work stoppages at port facilities; political instability or other international
    • events; economic disruptions; foreign currency fluctuations ; labor disputes at factories; the
    • imposition of new or adversely adjusted tariffs, duties, quotas, import and export controls,
    • taxes and other regulations; changes in the customs procedures concerning the
    • importation of apparel products; changes in domestic or foreign governmental policies;
    • actual or threatened acts of war or terrorism; or the occurrence of an epidemic.
  • 8. Competitive landscape – continuation.
    • Operating results are very sensitive to sales, which in periods of economic recession may result in sharp decline in earnings. The profitability of the company depends considerably also on trade regulations and customs duty tariffs relative to cotton and wool products which constitute the fabrics most used by Oxford Industries. Also important are import quota restrictions, such as the one in existence until 2005 which restricted the amount of garments imported from the most competitive areas in the Easter hemisphere. The lifting of this restriction has had a beneficial effect on margins for the Company.
  • 9. Competitive landscape – continuation.
    • Oxford Industries, Inc. is an international apparel design,
    • sourcing and marketing company of branded and private label
    • apparel for men, women and children. We are divided into four
    • primary segments: Tommy Bahama, Ben Sherman, Lanier
    • Clothes and Oxford Apparel. For the twelve months ended
    • February 2, 2008, net sales by operating group were
    • distributed as follows:
  • 10. Competitive landscape – continuation.
    • The company sales have grown at an average rate of 5.77% in the past 3 years, but sales for 2008, as in any income sensitive industry during a time of economic crisis, will most likely not keep up with this rate and could register a loss of sales compared to previous years. The company's expenses are growing faster then sales, as reflected in a yearly average growth on Operationg Income of about 2%, less the half the growth rate of sales.
    • We note that OXM shares have historically traded at a significant discount to the S&P 500. As of April 8, 08 Oxford shares traded at 11.1x fiscal year 2009 EPS estimate and 10.1x fiscal year 2010 EPS estimate.
    • OXM trades at a discount to its industry mean and median .
  • 11. Stock Valuation: DDM method Stock price as of June 2007 (date of last data reported in this paper) $44.83 (closing price 8/4/08: $ 20.61) Required rate of return (k) = Risk Free Rate + Company's Beta * MP = RFR 3.97% 10 Y T-Bonds OXM's Beta 1.8 MP = 0.48% Business risk 5.52% Financial Risk Total MP = 6.00% K = 14.77% g= 2.83 average over the period 2000-2007 D (t+1) = 0.66 as the company growth under every respect has been spotty, we assume that Dividends will be able to grow constantly but at a low rate of 1.07% annually, which is the geometric average at which Net Earnings have grown in the past 7 years. P= D/(k-g) = $4.95 Recommendation: sell
  • 12. Stock Valuation: FCFE model 2007 2006 2005 2004 2003 2002 mean FCF to the Firm (see table Part 3) 28294 56002 17836 48759 25542 10859 Interest Expense 22,214 23,971 26,146 23,530 1,935 243 Free Cash Flow to the Equity: 6,080 32,031 -8,310 25,229 23,607 10,616 14,876 Value: FCFE/(k-g for FCFE) = as we have seen in part 3 Tables that CF from operations is uneven, we project project $ 14,876 as FCF for the Equity at time 1, and a low growth rate of 6.74%, which is the annual geometric average growth rate for Sales over last 10 years period considered. Value: 14,876 / (0.1477-0.0151) value = $185,255 SO as of June 2007 = 17881 Intrinsic Value per share: $10.36 Recommendation: sell Value of OXM STOCK 01/2009: $ 6.07 – 9.55
  • 13. Support data GDP in B of $ 1998 $8,747 1999 $9,268 2000 $9,817 2001 $10,128 2002 $10,469 2003 $10,960 2004 $11,685 2005 $12,433 2006 $13,194 2007 $13,843 Source: frwebgate.access.gpo.gov
  • 14. Support data Consumer credit outstanding (adapted from monthly series from www.economagic.com) In M of $ 1998 $1,420,454 1999 $1,532,056 2000 $11,717,483 2001 $31,867,199 2002 $81,974,093 2003 $42,077,958 2004 $82,191,323 2005 $62,284,876 2006 $22,387,470 2007 $92,523,632
  • 15. Support data Disposable personal Income 1998 $6,395 1999 $6,695 2000 $7,194 2001 $7,486 2002 $7,830 2003 $8,162 2004 $8,681 2005 $9,092 2006 $9,629 2007 $10,184
  • 16. Support data Estimated Yearly Sales for Clothing Stores in M of $ 1998 10,376 1999 11,188 2000 12,122 2001 14,370 2002 14,790 2003 15,245 2004 15,953 2005 17,184 2006 18,225 2007 $18,518
  • 17. Table 1 A Correlation of Yearly Sales for Clothing Stores with GDP: 0.96854   strong positive correlation: GDP strong driver of clothing sales ( GDP line lies below Sales as we have not converted the data from Billions in M).
  • 18. Table 1 B Correlation of Yearly Sales for Clothing Stores with Cons.Cred.Outst: 0.704658   positive correlation, although not as strong as the one with GDP ( GDP line lies below Sales as we have not converted the data from Billions in M).
  • 19. Table 1 C Correlation of Yearly Sales for Clothing Stores with Dispos Pers Inc.: 0.978  Very strong positive correlation, as it can intuitively be expected . ( GDP line lies below Sales as we have not converted the data from Billions in M).
  • 20. Table 2 A This table has been downloaded from Smartmoney.com and has serves as base of reference OXFORD INDUSTRIES INC BEBE STORES INC COLUMBIA SPORTSWEAR CO Polo Ralph Lauren Corp. Quiksilver Inc. VF Corp. Industry Textile-Apparel Clothing Textile-Apparel Clothing Textile-Apparel Clothing Textile-Apparel Clothing Textile-Apparel Clothing Textile-Apparel Clothing Current Share Price 21.3 10.37 37.58 59.01 7.94 70.99 Market Value $338 mil $921 mil $1,306 mil $5,867 mil $1,005 mil $7,747 mil Revenues $1,093 mil $679 mil $1,358 mil $4,880 mil $2,471 mil $7,552 mil Net Earnings $46 mil $67 mil $126 mil $420 mil $-347 mil $625 mil 5-yr Sales Growth 11.58% 17.27% 8.44% 15.50% 23.99% 6.90% 5-yr Earnings Growth 35.30% 28.35% 5.00% 21.84% NA 8.86% Net Profit Margin 4.60% 9.80% 9.30% 8.60% -14.00% 8.30% Short Interest 14.5 14.2 13.3 4.4 8.1 2 Proj. Long-Term EPS Growth (%) 13.00% 14.50% 11.80% 12.00% 13.30% 10.40% Forward P/E 11 13.3 14.3 14.8 8.8 11.7 PEG 0.84 0.92 1.22 1.23 0.66 1.13 Price/Sales 0.3 1.4 1 1.3 0.4 1 Price/Cash Flow NA 10.8 NA 9.3 -4.3 NA Price/Book 0.8 1.9 1.4 2.5 1.5 1.9
  • 21. Table 2 A - continuation OXFORD INDUSTRIES INC BEBE STORES INC COLUMBIA SPORTSWEAR CO Polo Ralph Lauren Corp. Quiksilver Inc. VF Corp. Industry Textile-Apparel Clothing Textile-Apparel Clothing Textile-Apparel Clothing Textile-Apparel Clothing Textile-Apparel Clothing Textile-Apparel Clothing ROE 10.70% 14.00% 13.30% 18.10% -8.60% 17.50% ROA 5.10% 11.40% 11.10% 9.90% -2.90% 9.40% Dividends $0.72 $0.20 $0.64 $0.20 $0.00 $2.32 Dividend Yield 3.38% 1.93% 1.70% 0.34% 0.00% 3.27% Payout Ratio 21.60% 28.20% 17.80% 5.00% 0.00% 41.10% Total Return (12-mos) -38.70% -24.20% -36.20% -21.60% -40.70% -8.20% Total Return (3-yr) -49.80% -53.50% -16.80% 20.30% -47.90% 29.60% Beta 1.8 1.8 1 1.3 0.9 0.7 % Off 52-wk High 47.50% 34.57% 40.35% 36.88% 48.81% 24.27% % Above 52-wk Low 22.41% 17.71% 13.67% 16.74% 39.54% 11.48% On-Balance Volume Index 68 155 134 98 63 117
  • 22. Table 2 B - Correlation disposable income with OXM sales Disposabl. Inc. OXM sales Corrl: 0.5724 1998 $639,500 774,518 1999 $669,500 862,435 2000 $719,400 839,533 2001 $748,600 812,495 2002 $783,000 677,264 2003 $816,200 455,840 2004 $868,100 818,687 2005 $909,200 1,056,787 2006 $962,900 1,109,116 2007 $1,018,400 1,128,907
  • 23. Table 2 C - Correlation of GDP with OXM sales Years GDP in B of $ OXM sales Corrl: 0.61598 1998 $874,700 774,518 1999 $926,800 862,435 2000 $981,700 839,533 2001 $1,012,800 812,495 2002 $1,046,900 677,264 2003 $1,096,000 455,840 2004 $1,168,500 818,687 2005 $1,243,300 1,056,787 2006 $1,319,400 1,109,116 2007 $1,384,300 1,128,907
  • 24. PART 3 – SUPPORT FINANCIAL DATA
  • 25.   FIN ST     2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 Net sales 1,128,907 1,109,116 1,056,787 818,687 455,840 677,264 812,495 839,533 862,435 774,518 703,195 664,443 656,987 624,568 Geom. Yearly growth rate 6.74%                           COGS 681,147 677,429 653,538 515,481 339944 544016 663484 685841 698170 619690 566182 548610 543624 498790 60.34% 61.08% 61.84% 62.96% 74.58% 80.33% 81.66% 81.69% 80.95% 80.01% 80.52% 82.57% 82.75% 79.86% Gross Profit 447,760 431,687 403,249 303,206 115,896 133,248 149,011 153,692 164,265 154,828 137,013 115,833 113,363 125,778 Selling and Admin 356,970 339,073 336,608 251,836 124,362 115,729 119,390 112,056 116,284 111,041 100,691 101,617 91,601 91,209 31.62% 30.57% 31.85% 30.76% 27.28% 17.09% 14.69% 13.35% 13.48% 14.34% 14.32% 15.29% 13.94% 14.60% Amortization 6,405 7,642 8,978 6,709 77 Royalties and other Operating Income 16,462 13,144 12,059 5,114 Operating income 100,847 98,116 69,722 49,775 -8,466 17,519 29,621 41,636 47,981 43,787 36,322 14,216 21,762 34,569 Geom. Yearly growth rate 1.18%       OPM 8.93% 8.85% 6.60% 6.08% -1.86% 2.59% 3.65% 4.96% 5.56% 5.65% 5.17% 2.14% 3.31% 5.53% Interest expense 22,214 23,971 26,146 23,530 1,935 243 4,870 3,827 4,713 3,421 4,114 6,057 4,136 2,297 EBT 78,633 74,145 43,576 26,245 -10,401 17,276 24,751 37,809 43,268 40,366 32,208 8,159 17,626 32,272 Income taxes 26,313 22,944 25,753 23,384 13,087 6,704 9,504 14,368 16,875 15,743 12,561 1,463 1,251 13,071 Net Earnings 52,320 51,201 17,823 2,861 -23,488 10,572 15,247 23,441 26,393 24,623 19,647 6,696 16,375 19,201 Geom. Yea. growth rate 1.07% Net Profit Margin 4.63% 4.62% 1.69% 0.35% -5.15% 1.56% 1.88% 2.79% 3.06% 3.18% 2.79% 1.01% 2.49% 3.07%
  • 26.       2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 EPS $2.93 $2.88 $1.03 $0.17 -$1.55 $0.70 $1.02 $1.51 $1.56 $1.39 $1.12 $0.38 $0.94 $1.12 Diluted Shares Outstanding* 17,881 17,781 17,350 16,699 15,143 15,099 14,970 15,502 16,954 17,658 17,488 17,498 17,340 17,214 adapted for 2:1 stock split in 2003 Dividends 11,741 9,899 8,515 8,094 6,314 6,304 6,249 6,444 6,801 7,063 6,988 7,007 6,594 5,938 Retention Rate 77.56% 80.67% 52.22% -182.91% 126.88% 40.37% 59.01% 72.51% 74.23% 71.32% 64.43% -4.64% 59.73% 69.07% Dividend per share $0.66 $0.56 $0.49 $0.48 $0.42 $0.42 $0.42 $0.42 $0.40 $0.40 $0.40 $0.40 $0.38 $0.34 Total Assets 908,738 885,595 905,877 694,817 494,365 250,513 263,240 334,058 335,322 311,490 287,117 279,103 309,028 239,947 LT obligations 199,294 200,023 289,076 198,814 198,586 139 399 40,513 40,689 41,728 41,790 45,051 47,011 12,388 Stockholrders equity 450,945 398,701 303,501 238,977 189,365 175,201 168,940 164,314 154,351 159,769 141,517 128,950 132,579 127,735 Capex 31,312 24,953 23,407 14,073 2,051 1,528 4,332 5,927 7,063 8,801 7,622 8,192 14,790 9,395 BV per share at Yend 22.27 22.59 17.97 14.74 25.18 23.31 22.81 21.48 19.46 18.11 16.12 14.65 15.25 14.79 RonSHEq. 11.60% 12.84% 5.87% 1.20% -12.40% 6.03% 9.03% 14.27% 17.10% 16.30% 14.50% 1.70% 8.10% 15.80% RoATA 5.83% 5.72% 2.23% 0.48% -1.58% 1.03% 1.28% 1.75% 2.04% 2.06% 1.73% 0.57% 1.49% 4.00%
  • 27. % change in Sales                   07/06 06/05 05/04 04/03 03/02 02/01 01/00 00/99 99/98 98/97   Geomet. Yearly Growth: 1.78% 4.95% 29.08% 79.60% -32.69% -16.64% -3.22% -2.66% 11.35% 10.14%   6.74%     Ratio Change in Oper Earnings over Change in Sales 1.56 8.22 1.38 -8.64 4.54 2.45 8.96 4.98 0.84 2.03 Oper. Lev 2.78% 40.72% 40.07% -687.94% -148.32% -40.86% -28.86% -13.22% 9.58% 20.55%   2.63
  • 28.   BAL SH           1997 1996 Cash and Cash Equivalent 36882 10479 Receivable 138,035 144079 Inventories 137,333 123,594 Pre-paid expenses 21991 20214 CA related to disc. Oper - 59215 Total Current Assets 334241 357581 PP&E Net 87323 73663 Goodwill Net 222430 199232 Intangible, Net 234081 234453 Other NCA         30663 20666 Total Assets $       908,738 885595 Current Liabilities: AP 84385 105038 Accrued Salaries 26254 26754 Addit. Ac. Cost Payable 22575 11897 Dividends payable 2646 income Tax payable 8827 3138 Current Debt payable 403 130 CL related to discon. Operat. - 30716 Total Current Liabilities 142444 180319 LT Debt 199294 200023 Other 40947 29979 Non Current Deferred Income Taxes 75108 76573 Shareholders’ Equity:     Par Value $ 1 17843 17646 Additional Paid-In Capital 81611 74812 Retained earnings 341369 300973 Accumulated other comprehensive Inc. 10122 5270 Total Sh Ho Equity           450945 398701 Total Liabilities and Shareholders’ Equity     908738 885595
  • 29. Cash Flow Information 2007 2006 2005 2004 2003 2002 Net Cash provided by operating activities: 59606 80955 41243 62902 27593 12387 CapPurchases of PP&E     31312 24953 23407 14143 2051 1528 Free Cash Flow for the Firm 28294 56002 17836 48759 25542 10859 Cash Generation: Net Cash provided by operating activities: 59606 80955 41243 62902 27593 12387 Net Cash provided by investing activities -51467 -34594 -166704 -32061 -206090 -431 Net Cash provided by financing activities   -10826 -97998 -73999 -7363 184997 -4550 Net cash flow generated/used by continuing op. -2687 -51637 -199460 23478 6500 7406 Net Cash provided by discontinued operations 28316 55820 10229 - - - Net Total Cash-flow 25629 4183 -189231 23478 6500 7406
  • 30.   BASIC RATIOS   Industry aver. 2007 2006 (src:TDAmeritrade) growth (RR*ROE) 9.00% 10.36% Total Debt/Total Capital 23.37% 45.2% 50.8% Quick ratio 1.71 1.23 0.86 Interest coverage 33.43 4.539795 4.0931125 Return on Equity 22.04% 11.60% 12.84% Return on Assets 13.16% 5.76% 5.78% Return on Capital 15.98% 7.68% 8.21% Return per Employee $303,016 210595 n/a Revenue Growth (Most Rec. Qrt) 17.31% declined Revenue Growth (Trail.12M) 21.11% 1.78% Dividend 0.5127 $0.66 $0.56 Gross Profit margin 49.84% 60.34% 61.08% Operating Profit Margin 16.37% 8.93% 8.85% Net Profit Margin 10.32% 4.63% 4.62% Price/Earning 18.78 12.66 Price/Sales 1.56 0.35 Price/Book 3.35 0.84