U.S. Slump Wears Down Oxford

Oxford Industries, Inc.’s (OXM - Snapshot Report) first-quarter results came in ahead of our estimates. Unfortunately, it appears the upside was a one-quarter event. Management issued disappointing guidance for the rest of fiscal 2008. We are reducing our estimates for fiscal 2008 and 2009. We maintain our Hold rating on OXM shares.

The investment case for Oxford Industries comes from the company’s recognizable brand names and diversified product offerings that generate profitable growth. Its numerous brands and exclusive licenses require it to deliver a diversified product offering. The upshot here is that Oxford is not overly reliant on any one product line for a large portion of its growth. What’s more, Oxford has been able to improve its gross margin thanks to the unloading the Womenswear business and the growth of its higher-margin Tommy Bahama business.

Nevertheless, we are concerned with the difficult consumer spending environment, risks associated with the apparel industry, and risks associated with its business model. We believe these risks offset the company’s bullish factors.

The shares don’t look particularly cheap at 12.4x our fiscal 2008 EPS estimate and 10.9x our fiscal 2009 EPS estimate. OXM trades at a discount to its industry mean and median. We note that the shares have historically traded at a significant discount to the S&P 500. Based on other valuation measures including price-to-book, price-to-sales, and price-to-cash flow, OXM’s stock appears to trade at a reasonable valuation relative to its peers. Our target price is $24, which is 13x our fiscal year 2008 EPS estimate.

Read the full analyst report on OXM