The transformation at Tailored Brands Inc. has begun — but it’s likely not what investors had been expecting.
The men’s specialty retailer, which includes Men’s Wearhouse and Jos. A. Bank under the company umbrella, halted trading Wednesday afternoon before the end of the day’s session.
That’s because Tailored Brands said starting in the fourth quarter it would no longer be paying a dividend. The company anticipates that by suspending the 18-cent-per-share quarterly cash dividend it will have about $36.5 million a year available to buy back company shares and reduce debt.
“The board of directors’ unanimous decision to suspend the quarterly cash dividend for reallocation to debt repayment and share repurchases is consistent with our commitment to responsible allocation of capital,” Tailored Brands president and chief executive officer Dinesh Lathi said in his prepared remarks. “And while our [second-quarter] results and [third-quarter] guidance reflect what we’ve previously shared about the need to transform our customer experience and the fact that transformations take time, the early signs of customer response to our strategies indicate that we are making healthy progress on our journey.”
Investors didn’t seem pleased with the news. Company shares, which closed up 5.75 percent to $7.17 right around 2:30 p.m., plunged by more than 29 percent during after-hours trading. Year-over-year the company’s stock is down approximately 72 percent.
And while the retailer beat analyst expectations during the most recent quarter, both top- and bottom-line numbers fell short from a year earlier.
Total sales for the three-month period ending Aug. 3 dropped more than 4 percent to $789.5 million, down from $823.4 million the same time last year. Profits also fell to $34.2 million, down from $49.2 million during 2018’s second quarter. Sales at all three brands suffered during the quarter, but the biggest decline was at Men’s Wearhouse, where retail sales fell 4.9 percent compared with last year.
But Lathi said he’s pleased with the results.
“We are also seeing early customer response to our initiatives, which gives us confidence that unleashing the potential for this business to generate healthy positive comps lies in our transformational strategies of providing personalized products and services, inspiring and seamless experiences in and across every channel, and brands that stand for more than just price,” the ceo said.
“On our year-end call, we indicated that we had work ahead of us to transform our customer-facing experience to one that can generate sustainable and profitable growth,” Lathi continued. “We also said that, while we transform the experience, we would execute and invest in a focused manner with a clear goal of continuing to generate cash that we would deploy responsibly.”
In an effort to revive sales, the Fremont, Calif.-based company has been making a number of changes in the last year.
Earlier this month, Men’s Wearhouse and Jos. A. Bank signed a multiyear licensing agreement with the National Football League. The deal allows fans to customize suit and sport coat linings with logos from their favorite teams.
In August, Tailored Brands sold its corporate apparel business for $62 million in cash to a group led by its existing U.K.-based management team. At the time, the company said it planned to use the money to pay down debt, which would allow it to invest in new capital expenditure programs. The retailer has been saddled in debt since the purchase of Jos. A. Bank back in 2017, which came with a price tag of $1.8 billion.
The investment has been slow to pay off, however, as fashion — even corporate work attire — becomes increasingly casual.
The ease of online shopping hasn’t helped the company’s brands much either, which had 1,455 stores at the end of the quarter, many of them with expensive leases.
Still, there have been a few bright spots. Like sport coats at Jos. A. Bank, which Lathi said were so popular last quarter that the company couldn’t keep up with the demand. Another positive has been custom men’s suiting. Sales of custom suits rose 150 percent year-over-year in 2018’s third quarter.
The company has also made a number of changes to its senior leadership team in an effort to turn things around. That includes Lathi being elevated to ceo after longtime commander Doug Ewert retired in the fall of 2018.
Around the same time, Carrie Ask, an alum of Levi Strauss and Nike, was named president of the flagship Men’s Wearhouse division and Moores, its Canadian counterpart. Last month, Ask tapped three new executives for her team: Mary Ann McGrath from Williams Sonoma, former Calvin Klein exec Jerry Brandehoff, and Sharmila Sudhakar from walmart.com.
The company also closed one of its two Canadian distribution centers during the quarter and has shifted the majority of its advertising spend from broadcast channels to digital.
“Transformations take time,” Lathi ensured analysts on Wednesday evening’s conference call. “We have much work ahead of us to reinvigorate top-line performance. But I’m proud of the changes our team has made despite the challenging retail environment.”