Jos. A. Bank Clothiers Inc (NASDAQ:JOSB) has built a strong franchise in upscale menswear, similar to like-minded competitor The Men’s Wearhouse, Inc. (NYSE:MW), but it has been swimming against the tide of consumers’ increasingly casual clothing preferences. Despite slow growth, the company is a profit machine that has generated a large net cash balance, roughly $370 million at last check, leading institutional investor BeaconLight Capital to question its capital allocation strategy. While Jos. A. Bank Clothiers Inc (NASDAQ:JOSB) moved into the complementary tuxedo rental business in 2010, results of this specialty area haven’t yet positively affected overall growth. So, is there an opportunity here for investors?
What’s the value?
As the corporate world has shifted away from suits over the past two decades, Jos. A. Bank Clothiers Inc (NASDAQ:JOSB) has adapted its product mix by offering more casual clothing options, principally through its Traveler Collection of dress shirts, pants, and sweaters. It was also one of the first clothing designers to market a “separates” collection of suit pants that customers could mix and match with suit jackets. Since the company designs virtually all of its product lines, it can quickly respond to changing consumer tastes, which has enabled it to grow sales each year and expand its operating footprint to more than 600 stores around the country.
In its latest fiscal year, Jos. A. Bank Clothiers Inc (NASDAQ:JOSB) reported mixed financial results, with a 7.1% increase in revenue, but a 19.5% decline in operating income. Despite a rise in sales, led by a 23% gain in its online channel, the company’s profitability was hurt by lower volumes in its retail stores and higher raw material costs, especially for wool products. On the upside, Jos. A. Bank Clothiers Inc (NASDAQ:JOSB) has continued to gain participants in its discount corporate card program, with more than 500,000 companies at period end, which provides a strong base of consistent, repeat business.
Jos. A. Bank Clothiers Inc (NASDAQ:JOSB) has been emulating its larger competitor The Men’s Wearhouse, Inc. (NYSE:MW), which is also the country’s largest provider of tuxedo rentals through its namesake stores and smaller tuxedo specialty shops. The Men’s Wearhouse, Inc. (NYSE:MW) has done a better job than Jos. A. Bank at diversifying its business mix, with a series of acquisitions that have given it a leading position in the corporate apparel segment in the U.S. and U.K. It has also been improving the efficiency of its stores by slowly closing its tuxedo specialty shops and bringing the business into its nearby The Men’s Wearhouse, Inc. (NYSE:MW) locations.