I’m paraphrasing here, but the OXM CEO literally said something like [there are some brands that compete on price, and others that compete on product, like Tesla. We’re like the latter.] Can’t take anything away from the results…the company grew its top line by 11% and EPS by 14% in a very important quarter seasonally. Stellar, all around. The return to ‘event wear’, the return of people taking vacations and the de-urbanization of people moving to warmer ‘vacation-ish’ climates all are very real. But with the exception of de-urbanization (the smallest boost to its business) the factors that are boosting sales and margins to all-time highs are transitory, and are getting much worse on the margin – like, right now. OXM claims that it won’t compete on price (like Tesla), but what about the ~40% rise in industry-wide apparel inventories when the consumer is crashing? Its own inventory was up 75%...and the company claims that gross margins are sustainable? Maybe these post-covid ‘return to work/vacation’ trends last the year, but at some point this name is going to have to trade on next year’s earnings. And from where we sit, every line of the P&L will inflect negatively next year. I’m sorry, but a brand like Tommy Bahama does NOT have a normalized margin of 24% -- which is what it’s putting up today. Next year we think getting to 20% will be a stretch, and yes, the company will have to participate in the promotional environment that the Ralph Lauren’s, Calvin Klein’s and Tommy Hilfiger’s are subject to (and guiding to). As it relates to EPS power, $10-$11 (guidance and consensus) is not the ‘new normal’. It’s peak everything. We’ve got TAIL earnings reverting back to about $5 per share, which is good for a $50-$60 stock vs $100 today. If you’re short OXM, stay short. If you’re not, you should be.
Takeaway: This is the best quarter you’ll ever see this company report. It’s downhill from here. Best Idea Short.
