Oxford Industries (OXM): Weathering the Storm for a 2026 Rebound

Oxford Industries (OXM) finds itself at a pivotal crossroads. While tariff-driven margin pressures and uneven brand performance have clouded its near-term outlook, the company's aggressive supply chain restructuring and the resilience of its high-margin brands like Lilly Pulitzer position it for a potential turnaround by 2026. For investors willing to endure short-term turbulence, OXM's current valuation—a P/E of 8.5 and a 5.04% dividend yield—offers a compelling contrarian opportunity.

The Tariff Tsunami: Near-Term Earnings Pressure

The first quarter of 2025 underscored the severity of tariffs on OXM's financials. Gross margins contracted by 110 basis points to 64.3%, with tariffs directly responsible for $1 million (20 basis points) of the decline. Management now expects $40 million in additional tariff costs for FY2025, translating to a $2 per share after-tax hit—a stark escalation from the $9-10 million estimate in March. This pressure has forced OXM to slash its FY2025 EPS guidance to a range of $2.80–$3.20, down sharply from the $6.68 reported in FY2024.

The stock's decline mirrors this earnings uncertainty, but the structural shifts underway suggest this is a temporary setback.

Supply Chain Diversification: The Long Game

OXM's strategy to exit China-centric sourcing is its most critical lever for recovery. The company aims to reduce reliance on Chinese suppliers from 40% in 2024 to 30% in 2025, with plans to be “substantially out of China” by late 2026. While this transition carries upfront costs—including $20 million in incremental inventory from pre-purchase efforts—it eliminates the $40 million tariff overhang by 2026.

Management's confidence in this pivot is clear: they expect to fully offset tariff impacts by spring 2026 through a mix of price adjustments and operational efficiency. For instance, Tommy Bahama's upcoming spring 2026 line will see AUR increases of less than 3%, recovering margin dollars while limiting gross margin percentage declines to under 50 basis points. This cautious pricing strategy balances consumer sensitivity with margin protection.

Brand Performance: A Tale of Two Divisions

While OXM's portfolio faces uneven winds, Lilly Pulitzer's dominance offers a beacon of hope. The brand delivered 12% sales growth in Q1 2025 to $99 million, with operating income rising 16.7% to $18.1 million. Its ability to resonate with core consumers through curated assortments underscores its strength as a high-margin cash generator.

In contrast, Johnny Was stumbled, with sales plummeting 15.1% to $43.5 million and an operating loss of $3.4 million. The brand's struggles—attributed to markdowns, higher freight costs, and a shift to lower-margin wholesale channels—highlight execution challenges. However, this underperformance may prove transient. OXM's focus on store closures and inventory optimization at Johnny Was, paired with its broader supply chain pivot, could stabilize its trajectory by late 2025.

Valuation and Investment Thesis

At current levels, OXM trades at a deep discount to its historical multiples, reflecting market skepticism about its ability to navigate tariffs. Yet three factors argue for a contrarian buy:

1. Margin Recovery Timeline: By 2026, OXM's reduced tariff exposure and pricing strategies should stabilize margins. A 200-basis-point contraction in FY2025 could reverse to growth as China sourcing diminishes.
2. Lilly Pulitzer's Engine: The brand's 12% sales growth and 18.3% operating margin (vs. Johnny Was's -7.8%) signal that OXM's core strengths remain intact.
3. Dividend Resilience: The 55-year dividend streak and 5% yield offer downside protection, even if near-term EPS remains muted.

Conclusion: A Contrarian Play for 2026

OXM's FY2025 is a story of necessary pain. Tariffs, inventory shifts, and brand divergence have created headwinds, but these are temporary. By 2026, a restructured supply chain and the sustained power of high-margin brands like Lilly Pulitzer could deliver a margin rebound and EPS growth. For investors with a 12–18-month horizon, OXM's low valuation and dividend yield make it a compelling bet on a company poised to emerge stronger from the storm.

Historically, when Oxford Industries' earnings have met or exceeded lowered guidance since 2020, a six-month holding period delivered an average return of 16.83%, though with notable risk—including volatility of 42.65% and a maximum drawdown of -63.92%. This underscores the potential rewards but also highlights the need for a disciplined, long-term approach to navigate the volatility.

Investment recommendation: Consider accumulating OXM on dips, with a focus on long-term upside beyond 2025.