Jos. A. Bank Clothiers Inc. capped off another good year in 2010 with a strong fourth quarter, but the specter of rising raw material prices is looming large for the future.
In the three months ended Jan. 29, the Hampstead, Md.-based men’s specialty store chain posted net income of $40.9 million, or $1.47 a diluted share, 3 cents better than the $1.44 expected, on average, by analysts polled by Yahoo Finance. That was 15.5 percent above the year-ago profit of $35.5 million, or $1.28. Revenues grew 14 percent to $318.3 million from $279.3 million in the 2009 quarter as gross margin improved to 61.3 percent of sales from 60.7 percent a year ago.
Neal Black, chief executive officer, said the question for 2011 is: “How is the customer going to respond to the inevitable price increases?”
So far, consumers are not balking from paying slightly higher prices on several test items, which gives Black reason for optimism. “We’re all in the same boat,” he said of his vendors and competitors. “We all have to pay higher prices for commodities and we have to find a way to pay for them. It’s just a matter of when. But we think we can walk the tightrope.”
He said prices could rise in excess of 15 percent on some items such as corduroy pants, where the raw material increases are “out of sight.” But other classifications won’t rise as much. “The range is wide,” he said, “but across the assortment, it should be midsingle-digit increases.”
Black said the plan at Jos. A. Bank is to gradually inch prices up. “We want to manage the process so it’s not shocking,” he said. “So we’ll do it step by step, and we’ve already started. So far it’s under control and business is not slowing down.”
Black said he expects the promotional atmosphere, which drove sales in the fourth quarter, to continue to be prevalent this year. Additionally, the company is “bullish” about its e-commerce business, which “reached a new plateau” during the holidays. “We will try to sustain that this year.”
Turning to tuxedo rentals, Black said he is “happy with the results so far, but it will be hard to make a judgment until the third quarter when we’ll get a big peak from summer weddings.” And Black said the company’s five factory outlets that opened in 2010 are doing well enough to warrant an expansion of the concept. “Our target is to add 10 to 12 this year,” he said, “but real estate in the outlet world is quite full so the pace will be driven by the availability of appropriate real estate at the price we want to pay.”
For the full year, net income rose 20.6 percent to $85.8 million, or $3.08 a diluted share, from $71.2 million, or $2.56, in 2009. Sales rose 11.4 percent, to $858.1 million from $770.3 million a year ago, and were up 7 percent on a same-store basis. Gross margin expanded to 62.6 percent of sales from 61.3 percent in 2009.
According to the company’s annual report, filed Wednesday with the Securities and Exchange Commission, capital expenditures in 2011 will be between $33 million and $38 million, primarily to cover the opening of 40 to 50 stores and the renovation of several others.
The company said this year it expects inventories to increase “at a rate higher than experienced in recent years” due to a variety of factors, including new stores and higher inventory sourcing costs. Year-end inventories were $233.3 million, a 6.9 percent increase from the prior year.
The company’s shares closed Wednesday at $50.55, up $1.83 or 3.8 percent.