It’s going to be a long road ahead for Men’s Wearhouse Inc., which is slogging its way though a tricky and significant shift in Jos. A. Bank’s promotional stance and is now fighting to regain traction on Wall Street.
The stock was punished tremendously on Friday, plunging 43.4 percent to $22.70 after the retailer gave a preliminary view on its third quarter. Investors were surprised to learn that comparable-store sales at the company’s Jos. A. Banks division fell 14.6 percent in the third quarter as the chain backed away from its “Buy 1 get 3 Free” suit promotion.
President and chief executive officer Doug Ewert declined to comment citing a quiet period before the company’s third-quarter results are released, has in the past described the promotion as “toxic to the business.”
JJK Research Analyst Janet Kloppenburg said of the promotional shift: “That’s a big change from the original strategy. The interesting thing is that in the second-quarter business was starting to slow down and that’s what caused management to say ‘maybe we need a different promotion.’ They didn’t supply a whole lot of information. There’s a lot of uncertainty. I’ll wait to see what they say on the third-quarter conference call on Dec. 10.”
Goldman Sachs & Co. wasn’t willing to wait. Analyst Taposh Bari downgraded the stock to neutral and slashed the price target from $66 to $35. He wrote, “Jos. A. Banks declines are more than offsetting merger synergies and same-store sales growth at the legacy Men’s Wearhouse business.”
Men’s Wearhouse acquired Jos. A. Bank Clothiers for $1.8 billion last June — far more than the $1.1 billion in market capitalization the entire company had following Friday’s rout.
Ewert has said that the customer was telling them they didn’t want to buy so many suits at once. However, he admitted that changing brand perception and customer buying patterns would take time. The company has begun a new branding message promising quality and targeting a younger customer. They have also introduced new selling techniques and a new store compensation program.
Ewert said it was too early to report on any results of the new strategy and that he would not give any full-year guidance for 2016 or 2017 until March.
The company’s board has come under scrutiny from investors. The board members fired founder George Zimmer in June of 2013 and then rejected a $2.3 bid from Banks that fall. They turned around and bid $1.5 billion for Jos. A. Bank November of that year and later raised the bid.
It’s a tough time for the company to hit a bump in the road.
An especially warm fall isn’t helping drive men into the stores to buy wool suits or outerwear. Last quarter, the company was hurt by currency headwinds and the dollar has continued to surge, which will put further pressure on its earnings. Ewert also said the retailer was spending more money to acquire new customers at Jos. A. Bank since its value customers are leaving. That mean expenses will rise.
It’s challenging to get consumers to buy at full price once they’ve been trained to wait for flashy promotions.
J.C. Penney Co. Inc., under former chief executive officer Ron Johnson, received a lot of push back from customers when it decided to turn off the promotional spigot and switch to discount pricing every day. That move, which was part of a broader imagining of the retailer, cost the company to lose over 80 percent of its value and has taken years of recovery.