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Oxford Industries, Inc. (OXM - Snapshot Report) recently delivered its third consecutive positive earnings surprise on strong sales growth and margin expansion.
Management raised its guidance for the remainder of the year, prompting analysts to revise their estimates higher. This sent the stock to a Zacks #2 Rank (Buy).
Oxford offers exceptional growth potential and solid income. Based on consensus estimates, analysts project 80% EPS growth this year and 19% growth next year. Moreover, the company pays a dividend that yields 1.3%.
Oxford Industries, Inc. is an apparel company with a portfolio of owned and licensed brands. Its main brand is Tommy Bahama®, but Oxford also holds licenses to produce and sell certain product categories under the Kenneth Cole®, Geoffrey Beene® and Dockers® labels.
The company is headquartered in Atlanta, Georgia and has a market cap of $663 million.
Second Quarter Results
Oxford Industries reported better than expected results for the second quarter on August 31. Earnings per share came in at 57 cents, beating the Zacks Consensus Estimate by 4 cents. It was a whopping 78% increase over the same quarter in 2010.
Net sales rose 26% to $180.6 million, ahead of the Zacks Consensus Estimate of $178.0 million. The Tommy Bahama segment, which accounted for 60% of net sales, saw top-line growth of 10%.
Despite fears of rising commodity prices squeezing margins at retailers, the gross margin actually increased 130 basis points to 57.0%. Meanwhile, selling, general and administrative expenses declined from 49.9% to 48.9% of net sales as the company leveraged its fixed expenses.
These factors led to a stellar 54% increase in operating profit as the operating margin increased from 8.5% to 10.4% of net sales.
Following better than expected second quarter results, management raised its guidance for the remainder of 2011. The company now expects EPS between $2.20 and $2.30, up from previous guidance of $2.15 to $2.25.
This prompted analysts to revise their estimates higher too, sending the stock to a Zacks #2 Rank (Buy). The Zacks Consensus Estimate for 2011 is now $2.26, which is within guidance. This corresponds with a remarkable 80% increase over 2010 EPS.
The 2012 consensus estimate also increased and currently stands at $2.70. This represents 19% growth over 2011 EPS.
Oxford pays a dividend that yields 1.3%. The company cut its dividend in half back in 2009 but has raised it twice since then. It is currently 28% below its pre-recession levels.
Its payout ratio is relatively low at 25%, so as long as the company continues to grow its EPS, expect more dividend hikes on the horizon.
Shares of OXM have held up relatively well during the recent market pullback. The stock trades at 16.4x forward earnings, a slight premium to the industry average of 13.9x. Given Oxford's higher than average expected growth rates, however, this premium seems more than justified.
Oxford's price to sales ratio is 0.9, which is in-line with the industry.
The Bottom Line
With exceptional growth projections, rising earnings estimates, a solid dividend and reasonable valuation, Oxford Industries offers plenty to like.
Read the June 23 article here.
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Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research.