Jos. A. Bank Down on Barron’s Article

This week, Barron’s criticized the inventory levels at Jos. A. Bank (JOSB):

Chief Executive Robert N. Wildrick did a great job of shaking up the century-old retailer after he took charge in 1999. Annual sales have since tripled, to $604 million, while per-share earnings have risen eightfold. The company expects to report about $2.67 a share when it finishes accounting for the fiscal year ended January 2008 (called the 2007 fiscal year, by retailing convention). While adding 50 new stores a year, the chain grew revenues at existing stores. In all but 11 of the past 77 months, the retailer reported higher comparable-store sales — a measure that compares each store’s sales with its sales in the prior-year period. Frequent promotions drive the sales. These discounting binges make monthly comps erratic, varying by an average of seven percentage points around the median increase of 6%.
But comparable-store growth has been shrinking in the last two years. In fiscal 2005, comps grew more than 10%. In 2007, they grew less than 4%. The 2005 inflection in comps is intriguing, since that’s the year the company stopped using a controversial calculation method that had inflated its comps by not counting stores within 10 miles of a newly-opened store. Barron’s had previously criticized Bank’s comps approach (“Dressed for Success?“ Oct. 13, 2003). That may explain why the chain didn’t respond to our inquiries last week. More disturbing, Bank stopped reporting monthly comps after January of this year.
Along with softening comps, another sign of sputtering growth is Bank’s inventory accumulation. When we wrote about the company in 2003, it had about 350 days of inventory on hand (with a “day” of inventory equaling the quarter’s cost-of-goods-sold divided by 90 days). As of November 2007, Bank’s inventory had hit the 425-day mark while Men’s Wearhouse’s ending inventory was 292 days. The average of Bank’s starting and ending inventory for its November quarter was 397 days. Holiday sales probably reduced Bank’s number by the end of January, but the company hasn’t yet reported that balance sheet.

Posted by on March 31st, 2008 at 10:38 am

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