It’s not just retailers that are canceling orders — manufacturers are also reaching out to their suppliers to cut back on purchases in light of the catastrophic drop in business over the past couple of weeks.
In reporting fourth-quarter and year-end results on Thursday afternoon, Thomas Chubb, chairman and chief executive officer of Oxford Industries, said that to preserve the company’s liquidity, “we are taking steps to mitigate the risk of the inventory increases by working with our suppliers to cancel, delay or reduce our forward purchases. We are also taking advantage of our strength in digital to re-merchandise and re-market our seasonal offerings for this channel.”
Chubb said the company has been “getting lots of requests” from its retail customers for delays in delivery, reductions in the amount of product purchased and extended payment terms. “We’re going to work through those issues. We have a lot of great partners that we want to navigate this situation together with and come out successfully on the backend.”
One plan that will avoid merchandise “sitting in the back room of a store collecting dust,” he said, will find Oxford holding onto deliveries that would have arrived in April and they will now ship in December. “This is requiring a little bit of re-merchandising, but the product doesn’t really look that different, because in December we’re shifting to our early spring product anyway,” he said.
In addition to wholesale, Oxford operates a number of retail stores for its brands — Tommy Bahama, Lilly Pulitzer and Southern Tide — all of which were closed on March 17. Its stores in Australia closed earlier this week.
Chubb said that employment costs for the company were about $260 million in fiscal 2019 and through March 30, all Tommy Bahama employees at its stores and restaurants will receive full pay and benefits. But starting March 31, they will be furloughed, although the company will continue to cover health benefits through the month of April.
He said Oxford is also working with its landlords to mitigate occupancy costs, which were over $100 million last year.
One bright spot is that the company’s distribution centers remain open and the brands are able to fulfill online orders. E-commerce sales had posted a 10 percent growth rate last year and now represent 23 percent of overall sales.
Chubb said that since the COVID-19 situation emerged in the U.S., e-commerce sales have dropped, but are still bringing in some business. “Our products in our brands are highly discretionary,” he said. “They are highly correlated with social activity and travel, so in the early phases of this, we’ve seen a bit of a downturn in the e-commerce. That said, it has been a little bit uneven and in some places we’re seeing very strong business and good response to some very creative marketing things that our brands are doing. Obviously the plans we had for e-commerce at this time of year are kind of out the window and the teams are working very rapidly and very creatively to come up with messages that are appropriate for the times and resonate with the customers and we’ve seen some great things happen on that regard this week for sure.”
In the fourth quarter, Oxford reported operating income was $21.1 million, compared to $22 million in the same period last year. On an adjusted basis, it was $24.7 million compared to $24.1 million in the prior-year quarter. Net sales fell to $297.6 million, compared to $298.5 million in the prior-year period. Comparable-store sales, however, rose 4 percent.
For the year, operating income was $93.7 million compared to $90.6 million in fiscal 2018. On an adjusted basis, it was $99.1 million compared to $98.2 million the year before. Net sales increased to $1.12 billion from $1.11 the prior year while comparable-store sales rose 4 percent.
Chubb said that in order to preserve liquidity, Oxford has drawn $125 million from its $325 million credit facility.
“While COVID-19 has created a great deal of near-term uncertainty, we are well positioned to handle the challenges ahead thanks to our strong balance sheet and liquidity and our advanced digital capabilities that keep us closely connected to the consumer,” he concluded.