With Expanded Store Count Expectations, Jos. A. Bank Can Continue Its Run

Aug.30.12 | About: Jos. A. (JOSB)

Shares of retailer Jos. A. Bank (NASDAQ:JOSB) took off Wednesday after reporting revenue and earnings per share well above analysts' targets. The men's casual and tailored clothing chain saw shares trade up 14% on Wednesday, with the share price fast approaching the fifty two week high.

In the second quarter, Jos. A. Bank saw sales increase 12.9% to $260.3 million. The consensus on Yahoo Finance for revenue was $251.08 million. Net income rose 12.7% to $23.2 million, representing earnings per share of $0.83. Analysts were expecting earnings per share of $0.74, the same number reported in last year's second quarter.

The increased sales were from comparable same store sales being up 6.1% and direct marketing sales increasing 39.3%. The third quarter, which started in August, is off to positive same store sales growth as well.

The likely culprit of a 14% increase in the company's share price was new store guidance. The retailer, founded in 1905, previously forecasted it could have 650-675 retail stores open in the United States. Today, the retailer announced it has a new goal of 800 stores, represented by 700 full line stores and 100 factory stores. Currently the retailer has 572 stores open in 44 states. This new guidance gives shareholders the potential to open 228 stores from today, as opposed to 78-103. In each of the next two fiscal years, the company will open 45-50 stores.

The company sees average unit sales of close to $900,000. The addition of 50 stores a year adds $4.5 million to the top line. With increasing same store sales and direct marketing sales, the company can easily surpass this fiscal year's target of $1.07 billion in sales.

Jos. A. Bank is a leader in the men's casual, sportswear, and footwear categories. The retail stores also focus on tuxedo rentals for events like weddings. Jos. A Bank competes in the men's retail section with Men's Wearhouse (MW). Here is a comparison between the two retailers (Numbers are from Yahoo Finance):

Jos. A. Bank Men's Wearhouse
Market Cap $1.32 billion $1.62 billion
Share Price $47.44 $31.83
52 Week Range $39.54-$56.43 $24.50-$40.97
Dividend Yield 0% 2.4%
Cash Per Share $9.48 $2.33
Debt $0 $0
Number of Stores 572 Over 900
Price to Earnings 13.6x 11.72x
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From the chart, it appears that Men's Wearhouse is the better stock pick with a dividend yield and the lower price to earnings ratio going forward. However, I recommend Jos. A. Bank with its growth in stores, solid same store sales numbers, and a large cash position per share. In fact, when the company's cash position is backed out, shares trade at less than ten times this year's earnings. With a small market capitalization of $1.3 billion, the company remains an attractive buyout candidate for a retailer looking to enter the men's clothing sector.

It's time to get behind this retailer that has strong institutional ownership. Fidelity (14.7%), Royce (11.3%), Vanguard (5.8%), and Goldman Sachs (4.8%) all have large ownership positions in the retailer. Look for shares to drop later on this week as some owners take profits. I recommend buying before the company reports third quarter earnings, and likely blows away analysts again.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.