WWD.com/business-news/financial/mens-wearhouse-jos-a-bank-estimates-raised-2116740/
government-trade
government-trade

Men’s Wearhouse, Jos. A. Bank Estimates Raised

The aggressive promotions at The Men’s Wearhouse and Jos. A. Bank Clothiers have hit a sweet spot with Wall Street.

View Slideshow
Men’s Wearhouse is running buy-one-get-one-free promotions.

Men’s Wearhouse is running buy-one-get-one-free promotions.

Courtesy Photo

The aggressive promotions at The Men’s Wearhouse and Jos. A. Bank Clothiers have hit a sweet spot with Wall Street.

Last week, analyst Brian Tunick of J.P. Morgan raised estimates for both retailers, noting their promotional cadence — particularly on tailored clothing — is giving them a leg up on the competition. Men’s Wearhouse recently moved to a buy-one-get-one-free model in response to the economic downturn. And Jos. A. Bank has been running buy-one-get-two-free suit promotions.

Tunick wrote that although Men’s Wearhouse’s “merchandise margins will be pressured” by its move, the company has cut its SG&A costs to compensate. He raised his 2009 earnings per share estimate to 75 cents from 58 cents. “This assumes a 6 to 8 percent comp decline and EBIT margins at a record low level of 3.4 percent [of sales] — down 130 basis points year-over-year and a five-year average of 9.2 percent.”

He also raised his target price on the stock to $15 from $9. Men’s Wearhouse shares closed Tuesday at $17.31.

Turning to Jos. A. Bank, Tunick raised his 2009 EPS estimate to $3.25 from $3.06, which assumes comps will rise 3 to 5 percent and EBIT margins will be down 50 basis points to 13.2 percent. The target price for the stock is $39. Jos. A. Bank closed Tuesday at $40.95, up 89 cents or 2.2 percent.

Tunick called the company’s comparable-store sales growth over the past 12 months “remarkable, especially the up 13 percent in Q4, given the weakness we have seen in retail. Clearly, the company’s promotional model has been successful at driving traffic into its stores.”

Margaret Whitfield of Sterne, Agee & Leach Inc., is even more bullish on Jos. A. Bank. “They’ve had exceptional performance,” she told WWD, pointing to the success of the company’s suit promotions. “They’ve always been a high-low retailer, and they’re promotional by plan.”

She recently issued a research note that recommended a buy on the stock with a target price of $45 after a meeting with management. Whitfield wrote that although February and March sales were below plan, the shift in the Easter holiday should lead to “healthy sales trends” for the first quarter. She held fast to her EPS estimate of 55 cents a share, which is based on a comp rise of 4 percent versus a 6.4 percent increase in last year’s quarter, but said “estimates could prove to be conservative as [the company] continues to build market share.”

Although Whitfield does not follow Men’s Wearhouse, she said Bank’s surging suit business — sales rose 30 percent last year, with the high-end Signature model rising 38 percent — “suggests share gains came from both traditional department stores and Men’s Wearhouse.” Although it no longer issues monthly sales reports, comp-store sales declined 9.7 percent at the flagship Men’s Wearhouse chain in the fourth quarter.

Whitfield also noted that Bank’s move to advertising on ESPN, cable news and financial networks has helped it gain new customers.

“New customer acquisition can be measured by gains in its database, which grew to 4.4 million names last year, up from 3.8 million in fiscal year ’07,” she said.

Richard Jaffe of Stifel Nicolaus recently issued upbeat reports on the two retailers as well. Earlier this month, he said that despite “what was arguably the most challenging fourth quarter for retailers in 70 years, Jos. A. Bank showed it had the means to succeed.” He said over the past eight years, the company has created a margin structure that allows it to continue to achieve “healthy gross margins” despite an “exceptionally aggressive and eye-catching” promotional strategy. As an example, he said the company’s high-end Signature suit would have sold for $450 at that time, but today retails for $795. “This allows them to discount it at 70 percent off or give two suits free,” he said. 

Jaffe expects Bank will continue to use this strategy to drive sales “judiciously and effectively during high-volume periods in 2009,” such as Father’s Day and Labor Day. He did, however, express some concern about the fourth quarter, which will mark the one-year anniversary of the company’s promotion. As a result, he is predicting a “moderation in earnings growth in Q4” to a 6 percent increase and EPS growth of 6 percent in 2010.

Jaffe issued an upgrade for Men’s Wearhouse on March 12, saying the company appears to be gaining market share from department stores. “Macy’s, Dillard’s and Nordstrom are allowing their suit inventory to thin,” he wrote. “This essentially gifts market share to Men’s Wearhouse.” He said a similar situation occurred in the Nineties during the dot-com boom, when department stores “overreacted” to the casual trend and shied away from tailored clothing. So while the dress-up category declined, Men’s Wearhouse and Jos. A. Bank actually picked up share.

 

View Slideshow