oxford industries oxm

Marianna Malaspina, July 2008

Oxford Industries - OXMresearch report

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

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.

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.

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.

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.


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.


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.


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:


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.

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= 2.83average over the period 2000-2007

D (t+1) = 0.66 as the company growth under every respect has been spotty, we assume thatDividends 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

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: $10.36Recommendation: sell

Value of OXM STOCK 01/2009:

$ 6.07 – 9.55

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

Support data

Support dataConsumer credit outstanding (adapted from monthly series from www.economagic.com)

In M of $

1998$1,420,45

4

1999$1,532,05

6

2000$11,717,4

83

2001$31,867,1

99

2002$81,974,0

93

2003$42,077,9

58

2004$82,191,3

23

2005$62,284,8

76

2006$22,387,4

70

2007$92,523,6

32

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

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

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).

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


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.


Table 2 A This table has been downloaded from Smartmoney.com and has serves as base of reference

OXFORD INDUSTRIES INC

BEBE STORES INCCOLUMBIA

SPORTSWEAR COPolo Ralph Lauren

Corp.Quiksilver Inc. VF Corp.

Industry Textile-Apparel Clothing

Textile-Apparel Clothing





Current Share Price21.3 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 Margin4.60% 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/Sales0.3 1.4 1 1.3 0.4 1

Price/Cash FlowNA 10.8 NA 9.3 -4.3 NA

Price/Book0.8 1.9 1.4 2.5 1.5 1.9

Table 2 A - continuationOXFORD

INDUSTRIES INC

BEBE STORES INC

COLUMBIA SPORTSWEAR

CO

Polo Ralph Lauren Corp.

Quiksilver Inc. VF Corp.

Industry Textile-Apparel Clothing






ROE10.70% 14.00% 13.30% 18.10% -8.60% 17.50%

ROA5.10% 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 High47.50% 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

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

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

PART 3 – SUPPORT FINANCIAL DATA

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 681,147 677,429 653,538515,48

1 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 77Royalties and other Operating Income 16,462 13,144 12,059 5,114Operating 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%

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 9,395BV 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%

% 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 Growt

h:

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 2.03Oper. Lev

2.78% 40.72% 40.07% -687.94% -148.32% -40.86% -28.86% -13.22% 9.58% 20.55% 2.63

BAL SH 1997 1996

Cash and Cash Equivalent 36882 10479Receivable 138,035 144079Inventories 137,333 123,594Pre-paid expenses 21991 20214CA related to disc. Oper - 59215

Total Current Assets 334241 357581PP&E Net 87323 73663Goodwill Net 222430 199232Intangible, Net 234081 234453Other NCA 30663 20666

Total Assets $ 908,738 885595

Current Liabilities:AP 84385 105038Accrued Salaries 26254 26754Addit. Ac. Cost Payable 22575 11897Dividends payable 2646

income Tax payable 8827 3138Current 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 17646Additional Paid-In Capital 81611 74812Retained earnings 341369 300973

Accumulated other comprehensive Inc. 10122 5270Total Sh Ho Equity 450945 398701

Total Liabilities and Shareholders’ Equity 908738 885595

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

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 0.86Interest coverage 33.43 4.539795 4.0931125Return 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 $0.56Gross 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

oxford industries oxm

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