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Vitaliy Katsenelson
Vitaliy Katsenelson
Articles (126)  | Author's Website |

The Incredidble Jos. A. Bank

December 05, 2008 | About:

When I think of the Jos. A. Bank (JOSB), I think of Yogi Berra's saying "Nobody goes there because it is too crowded."

Only in the case of JOSB, it sounds like this: "EVERYBODY goes there because it is NOT crowded." As most men who shop there will attest, you are lucky to see and handful of customers shop at there at once at any given time. Nevertheless, it seems that JOSB operates in a very different economy and there is an incredible disconnect between its performance this year and the rest of the economy as well as other retailers.

JOSB reported 3rd quarter numbers couple of days ago and they were stellar even by a healthy economy's standards.

They were truly incredible considering that negative double-digit same-store sales for retailers have become the norm. JOSB reported same store sales of 7% for the quarter (the company doesn't report monthly numbers anymore). Total sales were up 13.7%. Operating profits before taxes were up 20.3%. Cash was up year-over-year, and inventory growth lagged sales. Every single metric was simply beautiful.

A great number of the company's stores were opened over the last three years which puts them in the category of “immature.” New stores, almost by definition, generate lower sales than mature stores. As stores mature, same store sales rise and profit margins expand. In addition, the company is able to spread advertising dollars against a large store base, which is another reason why the margins increased.

By the year-end JOSB should have over $100 mln of cash, which is about a quarter of its market cap. The margin expansion may actually continue into next year. JOSB said that it will slow down store openings next year but it will increase offerings of big and tall merchandise. I believe this will help JOSB generate more free cash flow as well as drive (a much higher margin) same store sales. At some point the economy will catch up with this retailer, but a lot of internal positives I just mentioned should mitigate the external negatives.

I presented JOSB at Value Investing Congress in Pasadena this year (see slide 31 and on).

We DON’T have a position in the stock, we sold out in September.

If your friends or colleagues would like to receive my emails, they can send an email to [email protected] .

About the author:

Vitaliy Katsenelson

Vitaliy N. Katsenelson, CFA, is Chief Investment Officer at Investment Management Associates in Denver, Colo. He is the author of The Little Book of Sideways Markets (Wiley, December 2010). To receive Vitaliy’s future articles by email or read his articles click here.
Investment Management Associates Inc. is a value investing firm based in Denver, Colorado. Its main focus is on growing and preserving wealth for private investors and institutions while adhering to a disciplined value investment process, as detailed in Vitaliy’s book Active Value Investing (Wiley, 2007).

Visit Vitaliy Katsenelson's Website

Rating: 2.3/5 (9 votes)


Adamcz - 8 years ago    Report SPAM
Vitaliy Katsenelson has been writing posts about JOSB for years now, so presumably he has a solid handle on the company's intrinsic value. How can he have no position at all when two weeks ago it traded at $15.40?? That's a much lower price than ever existed on the publication date of the previous dozen Vitaliy Katsenelson bullish-JOSB articles.

For instance, he wrote this bullish article on August 3 '06 when JOSB was at $26 a share:


More recently on Sept 4 '08, JOSB was at $28, and he wrote this:


Just doesn't make any sense to publicly pump a stock, but then pass at the opportunity to load up when the stock drops 43% from the price you pumped it at. Now that the stock again trades at $25, he just missed a 62% two week rally. On a stock he's been pumping for years!

I read some time ago that Mr. Katsenelson does not have a long term record that matches the S&P 500. Can anyone confirm or refute this? I couldn't find any posted record at his fund's website, but thought that there used to be one.
Vitaliy premium member - 8 years ago
Dear Adam,

As I’ve mentioned in the article we’ve sold Jos. A. Banks at the end of September. I wanted to see company’s numbers before I committed new capital to the stock. In the mean time we were buying other stocks. I was shocked to see the company perform as well as it did, I thought we’d see flat same store sales and single digit total revenue growth, but I did not expect 7% same store sales. In this market I don’t feel the need to chase after any stock. I am sure I’ll have an opportunity to buy JOSB in the future.

IMA – the firm I am with – has been in existence since 1979, long before I came to the United States. IMA’s long-term performance record is decent but not spectacular.

Since we’ve started managing accounts utilizing the Active Value Investing approach as presented in my book, we’ve substantially outperformed indices.

Vitaliy Katsenelson

Adamcz - 8 years ago    Report SPAM
Thanks for the reply Vitaliy, and sorry to confuse your firm's record prior to your arrival with your own.

For what it's worth, I know that passing on $15.40 has to be viewed in light of everything else that was available that same day (BRKB at $2.5k, etc).

Great to have you on gurufocus - I had no idea you were lurking around here.
Buffetteer17 premium member - 8 years ago
I've been contemplating JOSB for about 6 months but haven't bought yet. Their ability to show strong year-over-year growth for the recent quarter is impressive. The strong balance sheet is impressive. The free cash flow is impressive. I'll likely start a position on a pullback to around $20-22.
Dr. Paul Price
Dr. Paul Price - 8 years ago    Report SPAM
JOSB has a deceptive policy of advertising 50% off sales on merchandise that is always ticketed at double the real price points.

Their 'half-off' sales sound good on their ads but are really tacky and misleading to the public.

Another company that routinely marks up original prices simply to advertise big discounts is Radio Shack. They also are a less than stellar outfit in terms of honest business practices.
Alanb9 premium member - 8 years ago

Is your evidence anecdotal or is it documented somewhere? If it is, please share it with us. (For both Radio Shack and JOSB)

Adamcz - 8 years ago    Report SPAM
I can confirm stockdocx's complaint about JOSB's continual half-off sales, but that's just how the men's fashion world works. Any time I walk through the men's suit department at Macy's, I see suits for half off. I get emails from shirtmaker TM Lewin, and they literally have a permanent half off sale (unlike JOSB's which runs only most of the time).

They've gotten flack for their sales practices in the past, most notably from Client #9, Eliot Spitzer:


Since then, I think the company's sale practices have been more consistent with the rest of the industry.

I have mixed feelings about the business. I see no durable competitive advantage - and can't even wear their oversized clothing - but the stock for the most part has traded so cheaply relative to reasonably predicted cash flows, and has such a beautiful balance sheet. I've been long for years, but I'll sell it a lot sooner than I'll sell any of my other holdings. To that end, I did dump half my position in September at $38 (which is a number inside my estimated fair value range), and moved that money into AAPL. Had I known I could buy those same JOSB shares back at $15.40, I would have kept my cash on the sidelines, but such is life.

This is not one of those businesses that a ham sandwich could run, but the present management team seems to be doing a fantastic job at conservatively growing the business, and ignoring what analysts think about inventory levels, etc.
David Pinsen
David Pinsen - 8 years ago    Report SPAM
Anyone else find it a little disconcerting that Vitaliy would pump this stock publicly in the beginning of September and dump it by the end of the month? I'll bear that in mind next time I read one of his stock recommendations.
Dr. Paul Price
Dr. Paul Price - 8 years ago    Report SPAM
Why would he be pumping it up even now if he wants to buy it again?
David Pinsen
David Pinsen - 8 years ago    Report SPAM
Who knows.
Sivaram - 8 years ago    Report SPAM
DAVE: "Anyone else find it a little disconcerting that Vitaliy would pump this stock publicly in the beginning of September and dump it by the end of the month? I'll bear that in mind next time I read one of his stock recommendations."

The fact that it is disclosed that they sold it and have no position while promoting the stock implies that they are not profiting off someone else.

Even if they owned the stock, I don't see anything wrong with it. What if the stock ran up afterwards and they want to take a profit? Admittedly pump & dump scams are also similar in that someone presents a bullish case and exits when the price runs up. But there is no way to distinguish it from a genuine opinion.

I think if investors assumed that everything is an opinion, including those ratings from Moody's ;), we would all be better off.
David Pinsen
David Pinsen - 8 years ago    Report SPAM
"The fact that it is disclosed that they sold it and have no position while promoting the stock implies that they are not profiting off someone else"

I was referring to Vitaliy's article published in early September -- when he did own the stock.
Adamcz - 8 years ago    Report SPAM
JOSB is now up 73% from it's November low.
David Pinsen
David Pinsen - 8 years ago    Report SPAM
"JOSB is now up 73% from it's November low."

That shows you how hard it is to make money in stocks. Vitaliy knew this stock inside and out and even he didn't buy it at its November low.
Adamcz - 8 years ago    Report SPAM
Now up more than 150% from November, and doesn't even look particularly overvalued at today's prices. Company is doing just fine with growing earnings, no debt, over $100 million in cash.

Full disclosure, I won't continue to hold if prices rise much beyond this. My low end estimate is right around the current share price, so it's possible that there's no real margin of safety. I'm on the lookout for where to move the money next and haven't found my target yet.
Batbeer2 premium member - 8 years ago
Congratulations on a good pick.

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