Jos. A. Bank Clothiers: Lower Prices Are In

Jos. A. Bank designs and sells formal, business, business casual, and sports apparel for men. This 104-year old retailer has 463 stores across the U.S.

JOSB offers a full line of men’s attire including suits, tuxedos, shirts, vests, sport jackets, pants, overcoats, sweaters, ties, belts, socks, and underwear. It markets multiple tiers of clothing which vary in quality, price, material, design, and availability. Many clothes incorporate wrinkle-free and stain-resistant technologies. The Stores segment generated 89.5% of net sales in fiscal 2009, which ended Jan. 31. This segment includes the operations of 444 company-owned stores across 42 states and the District of Columbia. Most stores offer on sight tailoring services.

The Direct Marketing segment produced 8.8% of net sales. This segment includes sales generated through the company’s website and catalogs. Catalog sales have been declining as the website has gained popularity. In fact, JOSB distributed only 8.6 million catalogs in fiscal 2009, down 8.5% year-over-year.

The remaining 1.7% of net sales came from 12 franchised stores and seven company-owned outlet stores. JOSB collects initiation fees and royalties from franchisees. Outlet stores serve to liquidate excess inventory at discounted prices.

This small company has been growing rapidly, more than doubling its store count in the last five years. Comparable-store sales growth has also been impressive, climbing 8.9% in the most recent fiscal year, a period marked by a significant economic recession that is still ongoing. In fact, in the final quarter of the fiscal year, comparable store sales surged 13.4%. Net sales in fiscal Q1 2010 jumped 11.4% year-over-year to $161.9 million. However, aggressive promotional activity caused the gross profit margin to fall 177 basis points to 60.8%. Nonetheless, the operating profit margin climbed six basis points to 11.64% and net income jumped 16.5% to $11.46 million or 62 cents per share.

High-quality clothing, a strong value proposition, and aggressive promotions have been key drivers for growth. This strategy has pressured the gross profit margin, but has also increased traffic, boosted sales, and added to the bottom line. Despite the company’s success, the poor economic climate poses a significant investment risk. Rising unemployment could negatively impact JOSB’s business. Management is responding by reducing new store openings, which may prevent it from reaching its previously stated goal of 600 stores by 2012.

Surprisingly, JOSB is also benefiting from the country’s economic ills. According to NPD Group, a market research firm, demand is growing for men’s clothing priced above $100. An NPD analyst suggests this is due to a desire to appear more professional in an increasingly competitive employment market. JOSB is also benefiting from trading down behavior as those who used to shop at higher-priced clothiers seek better value.

Furthermore, we believe many men have recently changed their attitude toward business attire. The recession has made it almost unseemly to be seen wearing expensive luxury brands that may convey a lack of empathy for those who must get by with less. Simply put, no one wants to look like an investment banker these days. This shift in attitude bodes well for JOSB because it can deliver high-quality fashionable apparel at reasonable prices.

Comments

[Ergo:]

It's a great store for working people. Good quality, good fashion, low price (relative to other suit stores). And usually having a sale. They deserve to do well.

Jul 08 10:29 PM