Power Suits

Jos. A. Bank seems to fit the very image of success, but there are questions.

October 19, 2003

Tony DeSante would rather the word shopping not even be in his vocabulary and, until recently, he thought Jos. A. Bank Clothiers Inc. was the last place he would buy clothes. The 33-year-old hadn't been there since college graduation, when he bought his first business suit.

But one day during lunch last week, the federal employee was in a Bank store at F and 11th streets in Northwest Washington plunking down several hundred dollars for an olive-colored plaid suit and black dress shoes.

"I like the fit, it's easy to shop, and there's pretty good service," said DeSante, improving his wardrobe for a new job. "The suits are very business-like and conservative but not stuffy."

By attracting shoppers such as DeSante, the men's clothier based in Hampstead has pulled of a stunning transformation as the $84 billion apparel industry struggled. Its stock sold for less than $3 in late 1999 but climbed 17-fold, reaching $54.38 this month. The stock closed Friday at $42.90 down nearly 3 percent for the day, on the Nasdaq stock market.

Bank has doubled its outlets since 1999, opening its 200th store in San Francisco Friday. It plans to grow to 500 locations by 2007 as it makes strides on competitors such as Men's Wearhouse Inc. and Syms Corp. of New York.

The company's rapid rise in fortune has elicited skepticism among some analysts and investors. Questions have been raised about accounting practices, specifically how the company counts sales. The recent move by Robert N. Wildrick, the company's president and chief executive officer, to cash in 600,000 stock options has also caused some to wonder how much higher the stock can go.

"There's a lot of questions about their financials now," said Howard Davidowitz, chairman of Davidowitz & Associates, a national retail consulting firm based in New York. "I understand that they're expanding, but I think they may have gotten too optimistic about their business."

In the second fiscal quarter, which ended July 26, inventory levels at Bank jumped 75 percent, to $111 million from $47.6 million. Some analysts contend that is a signal the company isn't selling all the clothing it is ordering.

The company disputes that, saying it lost out on additional sales last year because it didn't have ample clothing in stock.

In a report filed with the Securities and Exchange Commission, the company said $19 million of the inventory is for stocking new stores and $4.1 million was summer wear that didn't sell. The remaining stock consists of raw materials such as wool, and merchandise used to beef up inventories from last year's levels.

"We feel very comfortable with the way we are positioned," Chief Financial Officer David E. Ullman said last week at the company's headquarters in Carroll County.

Bank executives said the company's jump in long-term debt - to $32.6 million for the 12 months ended July 26 compared with $9 million for the corresponding 12-month period - was also in line with their expectations as they buy merchandise to stock new stores.

"If we were to choose to stop opening stores tomorrow, within in a year we could pay off this debt," Wildrick said,

"They're an expanding chain, so they're going to have higher inventories," agreed Russell E. Hoss, an analyst with Roth Capital Partners in Newport Beach, Calif. "They have higher debt because of borrowing for higher inventories using their credit line." Hoss said he didn't think the Banks level of borrowing was egregious.

"I think it dovetails with a rapidly expanding company," he said.

The company's roots extend back to 1866, when Charles Bank immigrated from Lithuania and opened a small tailor shop in Baltimore. His grandson, Joseph A. Bank, joined as a cloth cutter at age 11 in 1898 and seven years later ventured out on his own as a clothes maker. He opened the first Jos. A. Bank retail store in Philadelphia in 1962.

Quaker Oats Co. owned Bank briefly in the 1980s but sold it to a group of investors. The company's fortunes fell as corporate casual dress grew before Wildrick was hired.

A Bank board member with 25 years in retail, Wildrick took over as chief executive in 1999. He embarked on a strategy that included improved attention to quality and cost-cutting at the company, which employees nearly 1,800 people.

To improve the company's image, Wildrick's management team created three lines of suits, to broaden its appeal to various shoppers, and spent $1 million on improving quality control.

A crooked stitch on a sleeve that might have been ignored previously is enough to get a suit returned to the manufacturing plant, as occurred with 10 Navy suits one day last week.

The company also began buying material for its clothes directly from the manufacturer, shaving 25 percent off the cost of making a suit.

Wildrick's decision to expand Jos. A. Bank while some national retailers cut back on men's clothing elicited favorable leasing deals from shopping center developers desperate for men's clothes outlets, analysts said.

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