Tailored Brands, Inc., is ready to start its next chapter.
Late Monday night, the men’s wear retailer completed its restructuring and emerged from Chapter 11. Under the terms of the plan, which was confirmed by the U.S. Bankruptcy Court in the Southern District of Texas on Nov. 13, 2020, the company has eliminated $686 million of debt from its balance sheet.
Tailored Brands now operates with a $430 million asset-based loan facility, a $365 million exit-term loan and $75 million of cash from a new debt facility. It is also no longer a public company and is now owned by its lenders.
The exit from bankruptcy allows the company to move forward without a crippling debt load — it had accumulated $1.8 billion in debt from its acquisition of Jos. A. Bank in 2014. But it is still hampered by its dependence on tailored clothing, a category that has been significantly impacted by the pandemic. It also has a large rental business, another category severely affected by the forced cancellations and postponement of proms, weddings and other special events this year.
As a result, observers believe the road ahead is still rocky.
Craig Johnson, founder of Customer Growth Partners, said the restructuring put the “immediate liquidity situation to bed for a while,” but the business is going to have to change in order to be successful in the future. “They’re deeply over capacity” in tailored clothing and related products when “men’s tailored clothing has fallen off a cliff,” he said. The company’s mix, which is some 60 percent tailored to sportswear, according to Johnson, needs to be reversed — and quickly.
At the same time, he believes the overall fleet of some 1,000 stores needs to be further trimmed and the corporation should sell or close its smaller divisions, Moores in Canada and K&G Superstores, to focus on Men’s Wearhouse and Jos. A. Bank.
“The two main brands are fixable because they have residual brand equity and fans out there, but they’ve got to get the cost structure down to meet supply and demand,” Johnson said.
Others believe the company needs to make other changes in its operating strategies, notably its promotional cadence. According to Ted Gavin, managing director and founding partner at restructuring firm Gavin/Solmonese, “The notion of overpricing merchandise and using discounts and coupons to draw people back may not be the best model going forward. It needs to be about convenience. Make the experience about customer satisfaction, not upselling everything possible and keeping the customer in-store for so long. For anyone who has anywhere else to be, Men’s Wearhouse is not a place you go — it’s a place you end up. That is both unfortunate and easily fixable.”
Jonathan Pasternak, a partner in the law firm of Davidoff Hutcher & Citron, has a more positive outlook for the business. “He cited the financing package and the $75 million in “fresh cash,” as adequate financing for the short term. He also pointed to the reduction in the workforce and the closure of the 500 stores as important moves to position the company for the future.
“That takes care of the oversaturation of brick-and-mortar,” Pasternak said, adding that the firm is also focusing more on e-commerce. Although he sees “a little overlap” between Men’s Wearhouse and Jos. A. Bank, the corporation is now leaner and meaner, which is a good thing. However, it is still needs to address the changing consumer tastes for tailored clothing. “More and more people will be working from home and society is getting more casual, so they’re going to have some challenges as they evolve their product line to adapt to the times,” Pasternak said.
Despite these challenges, the management team was upbeat about the company’s future in announcing the news Wednesday.
“We are thrilled to emerge from Chapter 11, having gained the financial and operational flexibility we need to support each of our brands in this rapidly evolving retail environment, continue to show up strong for our customers and remain an attractive employer,” said Dinesh Lathi, Tailored Brands president and chief executive officer. “I want to thank all of the lenders, employees, customers, landlords, vendors and other partners who helped us get to this point.
Adding to that, he said, “Be assured that, while addressing our underlying financial challenges precipitated by the unprecedented impact of COVID-19, we continued to strengthen our business and brands with efforts focused on expanding our omnichannel capabilities to provide even greater convenience for our customers, curating our merchandise assortments to align with today’s needs and trends, and launching exciting new partnerships that appeal to existing and new customers. As a result, we are confident we are well-positioned for the future and look forward to building upon this momentum as we enter this next chapter.”
As reported, the parent company of Men’s Wearhouse, Jos. A. Bank and Moores men’s stores in the U.S. and Canada, filed for bankruptcy in August. It has since closed 500 of its 1,400 stores in the U.S. and Canada and cut 20 percent of its workforce.
In early October, Tailored Brands reported that while sales were increasing, it was at a pace slower than originally projected in July. In a monthly operating report filed on Oct. 20, the company posted an operating loss of $27.3 million on sales of $146.1 million and said that sales for the Men’s Wearhouse division are expected to be down 57 percent this year and 21 percent in 2021. Jos. A. Bank is expected to be down 58 percent in 2020 and 22 percent in 2021; Moores in Canada may be down 62 percent this year and 23 percent next year, and K&G’s sales are expected to drop 45 percent this year and 13 percent in 2021.
On top of that, the company projected that clothing rental income this year is expected to be down 64 percent at Men’s Wearhouse, 69 percent at Jos. A. Bank, and 75 percent at Moores. The category is expected to increase 4.1 percent in fiscal year 2021 as weddings and events shift to next year.
A financial performance chart provided in October shows an expected return to profitability in fiscal year 2021 followed by subsequent gains through fiscal year 2024. The projection for this fiscal year is an EBITDA loss of $328 million, followed by a profit of $84 million next year, $213 million in fiscal year 2022, $226 million in 2023 and $240 million in 2024.
There have, however, been some bright spots for the company, notably e-commerce.
In September, Men’s Wearhouse stores were tracking ahead of plan with comp sales in this channel up 38 percent, raising the overall percentage of sales made online to 13 percent. At Jos. A. Bank, comps online rose 7 percent in September to reach 39 percent of total sales. Moores does not have an e-commerce site and that launch has been postponed until next summer.
Another upside has been its newly inked deal with Michael Strahan to sell his Collection by Michael Strahan suit separates and denim in Men’s Wearhouse stores and online. This is part of the company’s plan to put more emphasis on what it calls “polished casual” apparel, along with further focus on omnichannel and an upgraded store fleet.