The Weak Short Case Against Jos. A. Bank

On Wednesday, September 3, intra-day, Jos. A. Bank Clothiers (JOSB) reported Q2 earnings of $0.48 per share or $89 million on $152.7 million in revenue vs. $0.44 per share or $8.2 million on $134.3 million in revenue a year ago. Analysts were expecting $0.45 - $0.46 per share on $147.4 million in revenue, beating both earnings and revenue estimates. Share broke out at 2PM, up $2.93 or 11%, to close at $28.69 on 2.2 million shares.

Revenue grew 13.7% as same-store sales grew 6.8%. An increase of 6.8% is extremely positive given the difficult consumer spending environment that each retailer must tackle. Direct catalog and internet sales rose 10.2%, evidence of consumers’ desire to stay indoors and spend less on fuel. The increase in sales for Q2 was largely attributed to the Father’s Day holiday on June 15th.

One thing I do have to mention is the massive short interest in the stock, which is one of the largest percentages of float for any stock right now at 91.4%. There are approximately 15.3 million shares short on a 16.63 million share float. I expect recent price action to spook undercapitalized short sellers into covering in the next few weeks. The reason why the shorts love JOSB is because of the inventory levels, but there aren’t too many other reasons for having a short position.

Inventory increased 12.3%. However, instead of limiting inventory and selections, JOSB opted to provide a full selection in every category of men’s apparel to customers. The ability to keep inventory levels behind sales growth is a mark of retail leadership. JOSB’s cash increased to 64.3 million vs. 43.3 million a year ago, an almost 50% increase. JOSB also has zero long-term debt. I’ll also mention again that JOSB reported a 6.8% increase in same store sales while overall retailers, as a whole, reported August same-store sales at a growth of 2%. This doesn’t make JOSB a good short story unless something dramatic happens to JOSB’s inventory.

Besides, I used to shop at Men’s Wearhouse (MW), but I didn’t like its selection, and its limited inventory forced sales people to ask if I “wanted to wait a few days for a ‘special order’”. Special order? There’s nothing special about not having what a customer wants. JOSB not only provides what Men’s Wearhouse provides, but JOSB also has great selections for the younger, more “hip” generation of male customers. Does Men’s Wearhouse send out catalogs? Not that I know of. JOSB always sends me a catalog and discount coupons in the form of post cards every 1-2 weeks. And I never had a problem with having to wait for a ‘special order’; I always find exactly what I need and the price is always right.

Currently, 7 firms publish recommendations for JOSB with 2 “Buy” rating, and 5 “Hold” ratings. On September 5, CL King upgraded JOSB from “Neutral” to “Strong Buy”.

Technically, JOSB has been trading in a neutral-bound range of $20-$31 for 10 months. The bold blue line signifies that JOSB is making higher lows, bullish. In addition, the breakout intra-day when earnings were announced penetrated the $29 resistance level and is continuing to head higher. The next level of resistance within one-year is at $31.50. JOSB should have no problem reaching that level in the short-term.

Full Disclosure: Author holds a short-term long position in JOSB.
 

Comments

[notsosmart:]

i wonder-higher unemployment figures(who knows the true figure)men dressing down more & more,more telecommuting,is this a good bet?

2008 Sep 07 11:34 AM

[mikeedgar:]

Fashions tend to be more conservative in difficult economic times. People looking for work are going to make an extra effort to enhance their conservative appearance.

2008 Sep 07 03:56 PM

[John C. Lee:]

They've been around for over 100 years.

2008 Sep 07 06:19 PM

[notsosmart:]

how long were buggywhips around?

2008 Sep 07 07:59 PM

[User 222714:]

I understand what you are saying,but MW is everywhere and their people have great knowledge and outstanding customer servise.more and more people are looking for a job and they must dress to impress,it is a lot easier at mw

2008 Sep 07 10:49 PM

[John C. Lee:]

haha, true, but men's fashions (suits, dress shirts, ties) have not changed for decades.

2008 Sep 08 07:45 AM

[John C. Lee:]

unlike women, who have this need to having something new every week (or day).

2008 Sep 08 07:46 AM

[wiscoDude:]

Was the margin on those sales the same? Sometimes companies use discounts/special offers to boost sales and that is seen in the margin.

2008 Sep 17 11:37 AM

[John C. Lee:]

Have no idea, but I sold my position in JOSB today!!

2008 Sep 18 04:40 PM

[User 263610:]

"They've been around for over 100 years. "

Who cares how long they've been in business that has absolutely nothing to do with it, How long was Lehman in business for?

2008 Oct 05 07:53 PM

[John C. Lee:]

SA requires me to write fundamentals and not only technicals.

I made 21% so I don't give a f- either.

2008 Oct 06 07:55 AM