Growth plans are fine fit for Jos. A. Bank

Md. clothier envisions hundreds of new stores

Company can `fill a void'

Forecast for earnings in fiscal 2002 still rosy

October 20, 2002|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

As shoppers spend cautiously and some retailers pull back on store openings, Jos. A. Bank Clothiers Inc. is launching its biggest store expansion ever.

The timing, analysts say, couldn't be better.

The Hampstead-based menswear retailer said last week that it will boost the number of stores it plans to open next year from 30 to 50, putting about a third in new territory west of the Mississippi.

In the next five years, the 152-store chain plans to spread across the country and end up with 500 stores. Beyond that, the company envisions branching out into new retail concepts, as Limited Brands has done with offshoots Express and Victoria's Secret.

Last week, Bank raised its earnings expectations for fiscal 2002, projecting earnings of at least $1.40 a share, which would be 33 percent more than in fiscal 2001 and the third straight year with growth of at least 30 percent.

Analysts praised Bank's growth strategy as prudent at a time when economic woes and stagnant sales are keeping many retailers from expanding. That includes direct competitors in the menswear sector, analysts noted, such as Men's Wearhouse, with 690 stores, and Brooks Brothers, which runs 158 stores in the United States and sells merchandise overseas.

"The company can strike while the iron is hot, while they have the ability to expand and fill a void," said Michael M. Via, director of research for Anderson & Strudwick in Richmond, Va. "The company has strong finances, and an opportunity comes when you have good finances and the competition does not. The long-term trend for retail sales remains positive."

In its favor, Bank has infrastructure to support the growth and won't have to raise debt, analysts said. The company's warehouse in Hampstead can serve 500 stores.

Bank could face the risks that any expanding retailer could - that sales won't meet expectations, that mall traffic will decline, that the economy will worsen. But analysts think that Bank, under its current management, will avoid such pitfalls by continuing to move conservatively.

"They've been mulling over the possibility for a while," said Preston Silvey, an analyst with First Dallas Securities in Dallas. "If they're going to do it, they feel confident that it will work and that the markets could support their stores. If they're selective in the markets and get the right deals ... here's a high possibility it will work very profitably."

Bank executives shared the thinking behind their strategy last week during a conference call with analysts. Earnings and sales have been better than expected and should continue to be, they said. The chain's sales increase last month beat most retailers', climbing 9.2 percent - driven by strong demand for tailored apparel - compared with an average industry gain of 1.5 percent.

In deciding to speed up the pace of store openings, "the overriding factor is that no one else in our sector is expanding," said Robert N. Wildrick, Bank's chief executive officer. "Real estate developers for malls or specialty centers are giving us very good deals because we're the only menswear guy who's available to expand. We want to take the opportunity to jump in and get good real estate deals while they're there to get."

As Bank moves into states where it now has no stores, such as California, it will continue to take market share from competitors - other menswear chains and department stores, analysts said. Many consumers in new markets know the Jos. A. Bank brand through catalogs and the Internet.

"If the economy gets terrible or some tragedy occurs, we would want to stop the expansion and run it conservatively," Wildrick said. "Many retailers have gone broke announcing a big program and doing it even though sales were bad. We will not do that."

The chain said it has been able to negotiate lower rents than usual as shopping centers look to Bank as a key tenant that would lure retailers and male shoppers.

"Right now, we're the one that they want," Wildrick said.

Bank has letters of intent to sign leases on more than 30 locations and expects to have similar agreements by the end of this year for more than the 50 planned stores, Wildrick said. The chain said it can sign leases as little as three months before an opening, which would allow it to back off from a lease if it needed to.

Even after the company signs a lease, it will not have lost its flexibility, Wildrick said. The chain carefully monitors each store's weekly sales and profits.

"If it appears we will not meet profit objectives, and the company can get into jeopardy, we will pull back on the program. We will not go blindly ahead," Wildrick said.

He said the company should be able to undertake the expansion and maintain, at minimum, 20 percent average annual growth in earnings per share over the next five years, as well as debt-to-equity ratios of no more than 33 percent.

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