My thoughts on Oxford Industries (OXM); A government-bond bubble bursts; Young folks are looking for passive income with vending machines

1) If you've been regularly following my e-mails in recent months, you'll know that I've been occasionally discussing companies that caught my eye at the ICR conference in Orlando, Florida in January...

Another one hit my radar screen again last week when it reported fourth-quarter fiscal 2023 earnings: Oxford Industries (OXM).

As a bit of background, Oxford owns various clothing brands – the largest of which are Tommy Bahama (57% of sales), Lilly Pulitzer (22% of sales), and Johnny Was (13% of sales).

The company was founded in the 1940s, went public in the 1960s, and has paid a dividend every quarter since (the stock currently yields 2.3%). Here's a 30-year stock chart:

Turning back to Oxford's recent earnings results, these were in line with expectations: for the year, sales were up 11%, adjusted earnings per share ("EPS") were $10.15, and operating cash flow nearly doubled from $126 million to $244 million.

However, OXM shares fell slightly on tepid guidance: 4% to 6% growth in sales and a moderate decline in earnings (GAAP EPS in a range of $8.80 to $9.20 and adjusted EPS in a range of $9.30 to $9.70.)

This is about what I was expecting based on the comments I sent to my team at Stansberry Research in January after I saw Oxford at the ICR conference and took a look at the numbers – which I'll do again today...

Oxford has a $1.6 billion market cap, trades at 1.3 times revenues, 5.5 times EBITDA, and 11.2 times the midpoint of the company's 2024 adjusted earnings guidance. (Here's the latest investor presentation.)

Business was flat from 2005 to 2019, but has boomed post-pandemic. You can see what I mean in this chart of revenue and operating income:

However, the key question is whether this recent boom is the new normal.

Free cash flow is the same story – a big post-pandemic pop, but is it sustainable? Here's the chart of operating cash flow and capital expenditures ("capex"):

Oxford also pays a steady and growing dividend and buys back stock, occasionally in large chunks (though the share count has been flat for 20 years). This next chart shows dividends and share repurchases:

My take on Oxford – both back in January when I saw the company at the ICR conference and today in the wake of earnings – is that it's a solid company I want to keep an eye on.

But this is the kind of stock to buy when it's hated and really beaten down, not when it's close to an all-time high. So for now, I'll continue to watch it from the sidelines...

2) There was a government-bond bubble of epic proportions four years ago, when investors were willing to pay for the privilege of lending money to 21 countries including Bulgaria, Cyprus, Malta, Slovenia, and Slovakia. (I am not making this up.)

In his March 26 Week in Charts, Charlie Bilello shared the data from May 2020 in this table:

Fast-forward to today, and these investors have been absolutely incinerated – in some cases losing half their money in what were supposed to be the world's safest investments – as interest rates have risen sharply around the world.

Here's more from Bilello's post last week – including a table of the recent data:

In May 2020, there were 21 countries with negative interest rates. Today, after the Bank of Japan hiked rates back above 0%, there are none. Sanity has returned to the global bond market.

Unfortunately, these investors have gotten what they deserve for their foolishness.

3) This article in the Wall Street Journal last month got me thinking about the 36% of the American workforce that is made up of independent workers (as of 2022), up significantly from 27% in 2016: Chasing Passive Income, Americans Turn to Vending Machines. Excerpt:

Vending machines might seem an unlikely candidate for trending investment of the 2020s, but the idea has captured the imagination of Americans dreaming of easier money.

Some pursue chips and soda as a side hustle because their regular paychecks aren't enough for them to get by. Others bet on vending machines as a ticket to upward mobility, to quitting their jobs and becoming their own boss.

The startup cost is low and the formula simple. Buy a used machine for $1,500, load it up with products from Costco, charge a 100% markup and let the crinkled dollars roll in. But turning a profit takes real work, and the machines can be a losing proposition when stuck in locations without enough hungry foot traffic.

There are worse ideas – like getting sucked into one of the countless multilevel marketing scams, of which Herbalife (HLF) is the largest – but going into the vending machine business is still pretty terrible. As the article notes:

There is a fair amount of competition, too. America has three million vending machines, an $18.2 billion industry, with the average machine generating about $525 in monthly revenue, according to the National Automatic Merchandising Association.

More than half of operators bring in less than $1 million a year, according to trade publication Automatic Merchandiser.

Of course, as the article continues, this surge of foolishness is being driven by social media:

Between 2019 and 2023, the number of posts or comments mentioning passive income and vending machines more than tripled on X and increased by a factor of six on Instagram, according to Sprinklr, a social-media management platform. Google search interest in passive income increased some 75% during that same period.

Looking broadly at independent workers, it's difficult to make generalizations about such a large and diverse group of people.

But in general, I'm worried that many of them are making a terrible mistake that will cause lasting damage to their careers, finances, and lives.

In particular, my advice to young people would be to get a real job at a real company/organization that provides training, mentorship, and benefits, and try to build a career rather than wasting time and money driving for Uber Technologies (UBER) or trying to be an Instagram influencer.

Of course, I don't want to appear unsympathetic to those folks who have no other options than to scrape and scrap to try to get by. But I've seen too many people with plenty of good options throw it all away, pursuing a false dream of independence and passive income.

For more on this, I suggest taking a look at these studies:

• Freelance, side hustles, and gigs: Many more Americans have become independent workers (McKinsey)
• Gig Economy Statistics: Demographics and Trends in 2024 (TeamStage)
• National survey of gig workers paints a picture of poor working conditions, low pay (Economic Policy Institute)

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.