Jos. A. Bank Clothiers: Dressed for Success

If you peruse magazine stands, there’s no question that the number of women’s fashion publications significantly outnumber the number of magazines geared toward men. By the same token, the number of actual women’s retailers is by far higher than the number of men’s retailers.

When it comes to clothing, many would argue that it’s more difficult to attract the male consumer than his female counterpart, but such disparities are precisely some of the reasons why those men’s retailers that have managed to be successful in attracting, and keeping, a steady clientele may be among the most attractive stocks today.

A prime example is Jos. A. Bank Clothiers, Inc., (Nasdaq: JOSB) The 102-year-old Hampstead, Md.-based company has had a growth spurt in the past decade. Since its brush with bankruptcy in the late 1980s following a leveraged buyout, the firm has been fine-tuning its marketing and growing its retail locations with positive results. Of the chain's 400 stores, nearly two-thirds have been built since 1999.

Jos. A Bank engages in the designing, retailing and marketing nationally of men's accessories, and tailored and casual clothing. Besides its retail stores, the firm also sells its products via catalogs and the Internet.

Several analysts believe the stock is more than a little undervalued. In fact, shares hit a new 52-week low of $26.21 Monday, just weeks after the company reported a 1.4% increase in comparable-store sales for September as other retailers reported mixed results. On Wednesday, shares closed at $26.60. The company’s 52-week high is $46.16, established on June 12.

The recent slump may actually signify a great time to get in on this stock. Three analysts polled by Thomson/First Call have a mean target of $42.67. ValuEngine has a “buy” rating on the stock with a one-year price of $37.30.

Seven analysts polled by Thomson/First Call are also estimating earnings per share of $2.68 for the 2007 fiscal year on revenue of $612.96 million, and of $2.97 on revenue of $683.72 for the 2008 fiscal year.

For the year ended Feb. 3, 2007, Jos. A Bank earned $2.36 per share on revenue of $546.4 million.

Margaret Whitfield, a retail analyst with Sterne Agee, considers the stock the “cheapest” in her portfolio of 14 companies. (Whitfield’s portfolio includes The Gymboree Corporation (Nasdaq: GYMB), Guess?, Inc. (NYSE: GES) and Casual Male Retail Group, Inc. (Nasdaq: CMRG)). Her price target of $50 on the company is nearly double the current price.

Jos. A Bank “seems to be gaining market share in a very difficult retail environment,” says Whitfield.

Specifically, the firm’s high-end lines grew 23% in the first half of this year, which implies to Whitfield that the small cap is attracting a more affluent clientele.

“They’re probably getting people who are upgrading from Men’s Wearhouse or downgrading from Brooks Brothers,” she says.

Overall, Whitfield says spending on men’s apparel has so far outpaced women’s this year, according to recent statistics.

She is predicting EPS of $2.73 on revenue of $612.5 million for the 2007 fiscal year and EPS of $3.04 on revenue of $690.8 million for the 2008 fiscal year.

Meanwhile, Stifel Nicolaus recently raised its third quarter and 2007 fiscal year EPS estimates to $1.45, from $1.41, and $2.70, from $2.64, respectively, to account for increased interest income as a result of greater cash balances and slightly decreased share counts than originally modeled.

Another attractive quality of Jos. A Bank’s is that it has a small amount of debt and is building cash. It had about $40 million at the end of last year and Whitfield predicts it could have $70 million to $80 million by year’s end.

Analysts at Stifel Nicolaus agree. Although the firm has a “hold” rating on the stock, analysts wrote in a recent report that they believe Jos. A Bank “is nicely positioned to combat economic pressures in 2H07 as it has cleaned up its inventory (down 10% per square foot in Q2), has ample cash to complete its store expansion plans and operations, and generates more than 65% of its sales from core merchandise (less markdown risk).”

Stifel Nicolaus retail analyst Richard Jaffe points out that the firm has been able to discount its products while still improving margins because it began sourcing internationally rather than domestically several years ago.

The move has resulted in a “higher quality product at a lower cost,” Jaffe says.

Also, department stores have been exiting the tailored clothing business because it’s expensive to operate and requires a large inventory. This trend too has resulted in a greater market share for specialty retailers such as Jos. A Bank.

Looking ahead, Jos. A Bank management appears to have ambitious goals. It has conducted studies that indicate it might be able to support up to 600 stores and the firm’s long-term goal by the year 2012 is to increase sales to $1 billion and drive net income to $90 million. The company is also eyeing international growth.

In addition, Jos. A Bank is testing new products and store concepts. In recent years, the company opened its first airport locations at Baltimore-Washington International, Thurgood Marshall Airport and Ronald Reagan Washington National Airport in Washington, D.C. It is planning a third airport store at Logan International Airport in Boston, and is reportedly also working on a fall addition to its wrinkle-free Traveler separates line—a stain-resistant cashmere sweater.

As the U.S. male business professional grows more style-conscious, Jos. A Bank (JOSB) appears poised to grab a bigger piece of the male clothing market share. Considering Jos. A Bank’s recent lows, this may be the ideal time to cash in on this trend.

Disclosure: none

Comments

[KCInvestor:]

what do you think about their inventory management philosophy? i agree cheap for this growth

2007 Nov 20 10:12 AM