Gene Marcial’s Stock Picks October 20, 2009, 7:23PM EST
Marcial: Jos. A Bank Is Dressed for Success
The menswear company’s stock is soaring as investors admire its strong expense controls, savvy promotions, robust sales, and comfortable cash cushion
By Gene Marcial
Who says menswear is boring and unappreciated? Not Jos. A. Bank Clothiers (JOSB), which designs, makes, and sells apparel for men and boys, from underwear to formal wear, through its 460 retail stores in 42 states, the Internet, and its nationwide catalog. And on Wall Street, Jos. A. Bank is sought after not only as a sartorial mainstay but also for the allure of its shares, which have soared from a 52-week low of 15 a share on Nov. 21, 2008, to 46 on Oct. 20. The last time it traded this high was in 2007.
“Sales of men’s clothing have been brisk, and Jos. A. Bank has done a terrific job selling them in a tough economic environment,” says William Rutherford, president of Rutherford Investment Management, which owns shares. Same-store sales are rising, with yearly total sales up about 11%, says Rutherford. He expects the stock to pile up more gains as sales and earnings continue to accelerate.
Large institutional investors continue to add to their stakes, including Fidelity Management, which has accumulated a stake of 11.6% as of June 30, according to Bloomberg. Other large stakeholders that have also bought more shares include Barclays Global Investors, which owns 6.5%, and Vanguard Group with 5.2%.
Jos. A. Bank’s stock “holds our highest rank for timeliness,” says Jerry W. Gray, analyst at independent investment research outfit Value Line (VALU). The shares offer “decent appreciation potential through the years 2012-14,” he says, as the company is able to “achieve solid earnings gains, and should continue to do so over the next several years.”
strong controls on expenses
Part of Jos. A. Bank’s success is credited to its timely promotional programs. “Management has been very successful at driving sales through aggressive promotions and consistent advertising through all channels [its stores, the Internet, and catalogs],” says Richard E. Jaffe, retail analyst at investment firm Stifel Nicolaus (SF) (it has done banking for Jos. A. Bank). Many of its customers, he says, have been used to paying 40% to 70% off ticketed prices on its items.
But the discounts are being offset by strong expense controls, which have protected gross margins from eroding. That gives Jos. A. Bank some edge over its largest competitor, Men’s Wearhouse (MW), which has been forced to advertise more in media outlets, including cable TV, says Margaret Whitfield, retail analyst at investment firm Sterne Agee & Leach. Whitfield recently increased her 12-month target to 60 from 55.
Whitfield notes that the retailer has several new initiatives under way that are expected to bolster sales, including an improved e-commerce Web site to tap into overseas markets and a possible tuxedo rental business. And about 40 to 50 new stores are expected to open next year, with more possibly opening in 2011, she says. The company’s market share gains are likely to continue in high-margin suits, in particular, she adds.
comfortable cash cushion
Jos. A Bank’s best products are “top-quality classic men’s apparel,” said CEO and President R. Neal Black at a recent presentation before analysts. Founded in 1905, the company is also a pioneer in all-cotton, no-iron shirts and wrinkle-resistant, all-natural-fiber products, he said.
The clothier beat the Street’s estimates in the second quarter. It features a strong balance sheet, ending the quarter with $126 million in cash, or $6.80 a share, and no debt. That provides a comfortable cushion as the company increases its store base amid a weak economy.
Sterne Agee’s Whitfield figures the company will earn $3.60 a share in 2009 on sales of $747.6 million and $3.93 in 2010 on sales of $797 million, up from 2008’s $3.17 on sales of $695.9 million.
With Jos. A. Bank doing comfortably well in a weakened economy, analysts expect it will do even better during the coming recovery. Meanwhile, the stock’s impressive performance this year suggests to the bulls that there is more strength to come on the upside.
Unless otherwise noted, neither the sources cited in Gene Marcial’s Stock Picks nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.
Marcial writes the Inside Wall Street column for BusinessWeek. In 2008, FT Press published the book Gene Marcial’s 7 Commandments of Stock Investing.