Oxford Industries (OXM: $62/share) is in the Danger Zone this week.
Oxford is a clothing retailer that sells clothing under the Lilly Pulitzer, Tommy Bahama, and Ben Sherman brands. Over the past decade, acquisitions have boosted top line results and EPS while return on invested capital (ROIC) and economic earnings have declined.
Unbeknownst to many investors, Oxford’s aggressive acquisition strategy has caused the company to pile up hundreds of millions in off-balance sheet debt. Investors doing their homework also know that management has been destroying value as evidenced by the millions of dollars in asset write-downs. The stock, which makes our Most Dangerous list for October, is down 25% so far in 2014 and has more room to fall.
Top Line Growth Disguises Flat Profits
In looking only at Oxford’s top-line growth, investors could be forgiven for thinking that this company is in excellent shape. In its most recent quarter, Oxford’s Lilly Pulitzer brand posted 22% sales growth year over year, while Tommy Bahama reported solid growth at 3%. Oxford’s two other segments, Ben Sherman and Lanier Clothing, have been sluggish. Ben Sherman sales tanked 18% last year while Lanier sales were up just 2%.
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