Bear of the Day: Oxford Industries (OXM)

Oxford Industries is an apparel company that designs, markets, and distributes products of lifestyle and other brands worldwide. The company offers men’s and women’s sportswear under the Tommy Bahama brand, and licenses this brand for various products including indoor and outdoor furniture, beach chairs, bedding and bath linens, toiletries, and sleepwear.

In addition, Oxford Industries sells jewelry, bags, scarves, belts, swimwear, and footwear under the Lilly Pulitzer brand. The company distributes its products through retail stores, department stores, specialty retailers, and e-commerce sites.

In its latest earnings report, CEO Tom Chubb attributed the weak second quarter to “a challenging consumer environment” after the company slashed its outlook. Shares of Oxford Industries sank to their lowest level in more than two years following the results.                                                             

The Zacks Rundown

Oxford Industries OXM, a Zacks Rank #5 (Strong Sell) stock, is a component of the Zacks Textile – Apparel industry group, which currently ranks in the bottom 38% out of approximately 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months, just as it has throughout the year:

Image Source: Zacks Investment Research

Stocks in the bottom tiers of industries can often be intriguing short candidates. While individual stocks have the ability to outperform even when they’re part of a lagging industry, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.

Along with many other apparel stocks, OXM shares have been underperforming this year while the general market returned to new heights. The stock is hitting a series of lower lows and represents a compelling short opportunity as we head deeper into the fourth quarter.

Recent Earnings Misses & Deteriorating Outlook

Oxford Industries has fallen short of earnings estimates in three of the past four quarters. Back in September, the company reported second-quarter earnings of $2.77/share, missing the $3.05/share Zacks Consensus Estimate by -9.2%. Consistently falling short of earnings estimates is a recipe for underperformance, and OXM is no exception.

The Tommy Bahama parent reported revenues during the quarter of $419.9 million, which represented a -0.1% decline from the year-ago period. The company has topped revenue expectations just once over the past four quarters.

Oxford Industries has been on the receiving end of negative earnings estimate revisions as of late. Looking at the current quarter, analysts have slashed estimates by a whopping -90.18% in the past 60 days. The Q3 Zacks Consensus EPS Estimate is now $0.11/share, reflecting negative growth of -89.1% relative to the year-ago period.

Image Source: Zacks Investment Research

Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.

Technical Outlook

As illustrated below, OXM stock is in a sustained downtrend. Notice how the stock has made a series of lower lows, widely underperforming the major indices. Also note that shares are trading below downward-sloping 50-day (blue line) and 200-day average (red line) moving averages – another good sign for the bears.

Image Source: StockCharts

OXM stock has experienced what is known as a “death cross,” whereby the stock’s 50-day moving average crosses below its 200-day moving average. The stock would have to make an outsized move to the upside and show increasing earnings estimate revisions to warrant taking any long positions. Shares have fallen nearly 20% this year alone.

Final Thoughts

A deteriorating fundamental and technical backdrop show that this stock is not set to make its way to new highs anytime soon. The fact that OXM is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.

Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of OXM until the situation shows major signs of improvement.

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