Market rips clothier

Jos. A. Bank disappoints Wall St.

stock falls 28%

Jos. A. Bank shares plunge 28%

June 09, 2006|By ANDREA K. WALKER | ANDREA K. WALKER,SUN REPORTER

Wall Street pummeled Jos. A. Bank Clothiers Inc. stock yesterday with the largest percentage drop on the Nasdaq, after the company reported first-quarter earnings well below expectations.

The Hampstead-based company, known for its heavy promotions, said it may have advertised too aggressively as shoppers bought more discounted fall merchandise items than it had anticipated. Discounted items have lower margins then regularly priced goods.

But during a conference call yesterday that grew tense at times, analysts questioned whether the company's large fall inventory levels were intentional and forced it to discount to get rid of merchandise. They also wondered whether people were becoming disinterested in Bank's core product.

Net income for the fiscal first quarter that ended April 29 was $5.9 million, or 32 cents per share. That was down from $6.7 million, or 38 cents per share, a year ago.

The news caused the stock to fall $10.73, or nearly 29 percent, to close at $26.40. Nearly 12 million shares were traded, compared with about 400,000 on a typical day.

Analysts surveyed by Thomson Financial had projected earnings of 46 cents a share.

Revenue increased 18 percent to $113.7 million from $96.6 million for the corresponding period a year earlier. Comparable-store sales increased 4.7 percent.

Bank has transformed itself in the past decade into a major player in men's apparel, aggressively expanding with dozens of stores in new markets. But the company has also been scrutinized for its inventory levels, which tend to be higher than at most retail businesses.

Chief executive Robert N. Wildrick called what happened an "aberration" and said he was comfortable with the company's inventory levels.

"We promoted a little more and they bought more," he said. "So it goofed up our mix a little bit and it surprised us."

The company said it has been reducing inventory levels. At the end of fiscal year 2005, it had a 38 percent year-over-year increase in inventory levels. By comparison, it had 27 percent inventory growth year-over-year in the first quarter.

"Given that we don't expect to build the inventory the same as last year, we expect our cash to be stronger," said David E. Ullman, chief financial officer. Ullman said he was "disappointed at how negatively Wall Street had reacted."

Wildrick became testy at some points during the conference call as analysts pushed him on the inventory issue.

"I told you what happened," he told Richard E. Jaffe, an analyst with Stifel Nicolaus. "I think you're wasting your time and mine on this."

The company also said that its lower-priced suits didn't sell well. One analyst said in a phone interview after the call that it's a trend facing the entire men's apparel industry as customers buy fewer suits.

"The suit business has been weak for awhile," said Margaret Whitfield, an analyst with Ryan Beck & Co. "In general, I think there is a trend toward casualization under way."

Paula Kalandiak, an analyst with Roth Capital Partners, downgraded Bank's stock to "hold" from "buy" after the earnings were released. Higher sales of fall and winter clearance merchandise were likely due to "an intentional inventory build," she wrote. She also said that she expected the build to stabilize by the second quarter to be in line with sales growth. Kalandiak believes suit sales could be the bigger issue.

"We believe that it is prudent to stay on the sidelines until we have more clarity on the inventory situation, and until we determine whether this is the beginning of a longer-term trend in declining suit sales," she wrote.

Despite the poor first-quarter performance, Bank executives said the company is on schedule to open 50 stores this year. Bank will open its second airport location at Ronald Reagan Washington National Airport this summer. Its first airport store opened last year at Baltimore-Washington International Thurgood Marshall Airport.

Wildrick said spring sales seem to be on track so far, although the company will have a better idea after Father's Day this month, a key sales day in men's apparel. The company is still predicting double-digit profit increases for fiscal 2006.

"We think this year we'll still have a record year and we'll make more money than last year," Wildrick said. "We're not going to change course. We're not going to panic over a quarter that, while it wasn't up to our expectations, it probably was better than most retailers out there."

andrea.walker@baltsun.com

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