Investments in its e-commerce offering and new product innovation could serve as a catalyst for the financial performance of Tailored Brands Inc. TLRD.
The custom clothing retailer is seeking to improve the customer experience, while increasing the size of its total addressable market by offering a wider variety of products.
Despite the stock falling 78% over the last year versus a rise of 9% for the S&P 500, it seems to offer good value for money.
Given its sound strategy and improving financial outlook, the company could offer recovery potential.
Customer experience
An increasing focus on improving the in-store experience could strengthen customer loyalty. In the most recent quarter, for example, the company began a pilot program where customers are able to see their custom suit selections in real time on an in-store iPad. Preliminary feedback has been positive and the program is expected to lead to higher conversion rates among consumers.
Tailored Brands also introduced an enhanced fixture and visual merchandising package across 80 stores in the most recent quarter. This is expected to create a more visually engaging shopping experience through the use of backlit graphics and a minimalist design. So far, the store redesign has led to improved sales performance as well as greater satisfaction among customers.
New products
The company is seeking to offer a wider variety of innovative products. Last quarter, it introduced a sports coat that incorporates temperature regulating fabric technology. This resonated with customers, with a pipeline of innovative products having the potential to strengthen its brand appeal.
This is part of a gradual shift in strategy toward offering increasingly innovative clothing beyond custom suits. The change is expected to increase the size of its total addressable market, providing it the opportunity to cater to casual events as well as formal occasions.
Omnichannel appeal
Tailored Brands is in the process of testing a variety of changes it is making to its e-commerce offering. It has engaged with a third party to test upgrades to its website that are aimed at improving the user experience and offering greater personalization. For example, it now displays estimated delivery dates in the shopping cart, while the email requirement for customers to check out appears later in the transaction process.
The implementation of the changes is expected to increase conversion rates and average order value. Since many of the changes being made are already fairly standard in the wider e-commerce industry, their adoption may not prove to be highly disruptive.
Threats
Tailored Brands’ comparative sales declined 3.2% in the last quarter. Further challenges could be ahead in the short run, with wider retail industry sales potentially coming under pressure from higher prices caused by tariffs on imports from China. Although the company has not been directly impacted by the tariffs so far, the potential for additional taxes to be placed on all Chinese imports could hurt its financial prospects since 23% of its products are sourced from the Asian country.
In order to mitigate the impact of additional tariffs, the business is seeking to reduce its exposure to Chinese-produced goods. In the next fiscal year, for example, it is expected to cut the proportion of direct sourced products from China to 18%. It has also completed negotiations with Chinese vendors, with them agreeing to absorb the majority of any negative impacts resulting from the tariffs. The company will absorb any remaining costs, expecting minimal impact to its profitability.
Outlook
In the next fiscal year, Tailored Brands is forecasted to record an 11.9% increase in earnings per share. Since the stock trades with a price-earnings ratio of 3.6, it appears to offer a wide margin of safety.
A pivot toward casual clothing could lead to a larger potential customer base, while product innovation may strengthen its brand appeal.
With further changes set to be made to its online offering, e-commerce sales could benefit from increasing levels of customer engagement.
Although the stock's decline over the last year has been disappointing for investors, Tailored Brands now appears to offer good value and turnaround potential.
Disclosure: The author has no positions in any stocks mentioned.
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