Jos. A. Bank Clothiers Inc. is a U.S.-based designer, manufacturer, retailer, and direct marketer of men’s tailored and casual clothing and accessories and is a retailer of tuxedo rental products. The company targets male career professionals with an emphasis on selling dress and business clothing. The company markets three main product lines: Jos. A. Bank Executive, Signature, and Signature Gold. The Executive and Signature lines feature cheaper fused construction suits, while the more expensive Signature Gold line features half canvas construction suits. The company also recently added a fourth line, the Platinum line, that features suits handmade in Italy. Stores also have an onsite tailor.
JOSB purchases all of its merchandise as a finished product with the supplier responsible for sourcing any components. The merchandise JOSB purchases is subject to their designs and specifications and is purchased directly from suppliers or manufacturers or from buying agents.
As of the latest quarter, the company had 526 stores.
In-house product design and a sourcing strategy of eliminating the middleman and dealing directly with manufacturers have enabled JOSB to increase margins over the past decade. It has also allowed the company to improve quality while maintaining existing margins.
Revenue and Earnings Growth:
The company has posted impressive growth over the past decade, including growing revenue and earnings per share straight through the recession. While aggressive pricing and promotions (including a 50%-off sale as of this writing) no doubt have contributed to strong sales momentum, another advantage JOSB has is the demographic it serves. Suits in the Signature Gold line retail for $1,250 and those in the Platinum line retail for $2,195. With those prices JOSB is targeting, as they state, upper-income career professionals. This demographic has been one that has been least affect by the recession.
For example, unemployment remains low among advanced degree holders that likely make up the bulk of JOSB’s target market.
Unemployment Rate for 2010 by Degree Type:
· Bachelors: 5.4%
· Masters: 4.0%
· Professional: 2.4%
· Doctoral: 1.9%
JOSB’s target market, upper-income professionals, have also seen their income increase. After-tax income of top 20% grew 95% over past three decades. This puts JOSB at an advantage over competitor Men’s Wearhouse which offers cheaper, lower-quality suits and targets a lower-income demographic. Of course both companies miss out on targeting the very top income earners who did the best and are likely busy buying custom Brioni suits and haven’t darkened the doorway of a chain dress clothing store in some time.
Return on Assets and Return on Capital
JOSB’s focus on improving margins and improving same store sales growth has increased ROA and ROC from decidedly below average at the beginning of last decade to above average levels today.
With 526 stores as of last quarter (the map below is from a slightly older investor presentation), the company has just about filled out its footprint in the U.S.
(Source: Company presentation)
The company still has some plans for maintaining growth. The company is planning on opening about 50-75 factory stores in addition to its more than 500 full service stores. The company started opening factory stores in 2010 with five test stores and will open another 10-11 this year. They are also converting all seven of their outlet stores to factory stores.
JOSB also recently added tuxedo rentals to substantially all stores. The company contracts with a third-party distributor and inventory manager so margins will likely be slim.
Falling cotton prices should also help margins; however, JOSB's big ticket item, suits, are wool, so other retailers whose products are primarily cotton will see a much bigger boost to margins from falling cotton prices than JOSB.
Competitors and Valuation
As one might expect from a company with a decade-long history of success, JOSB trades at the upper end of its historical valuation range.
Of course, this doesn’t tell the whole story. At the beginning of last decade JOSB was a below-average retailer with low margins and low returns on capital, but the company has greatly improved operations, and the historical valuation range might not be of much use.
Looking at competitors shows a different story.
JOSB margins and return on assets are well above that of competitor Men’s Wearhouse (MW) and even other department stores (the brown section). JOSB is also better than specialty retailers (green), including the popular Abercrombie & Fitch (ANF) whose stock and business have been on a tear lately. Based on JOSB’s business results it fits in more with luxury goods retailers (blue) like Ralph Lauren (RL) or Tiffany’s (TIF). Nobody can beat Coach (COH) though, it seems.
Despite posting better results than TIF and RL, JOSB trades at a discount at less than 7 times EV/EBITDA and a P/E of 16.43 versus a P/E in the 20s. If investors believe JOSB can keep up the results and customers will continue to go there for higher-end clothing, then JOSB should eventually trade in line with its real comparables, luxury retailers, rather than its current comp which are run-of-the-mill department stores and chain stores.
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Disclosure: No positions (and no Jos. A. Bank suits)