Jos. A. Bank earnings increase 18%

Strength is shown in weak retail area

June 05, 2008|By Andrea K. Walker | Andrea K. Walker,Sun reporter

Shares of Jos. A. Bank rose sharply yesterday after the men's clothing retailer posted an 18 percent increase in fiscal first-quarter earnings on increased sales - a bright spot in the generally weak retail environment.

The Hampstead company said net income for the quarter that ended May 3 was $9.8 million, or 53 cents per share. That was compared with $8.4 million, or 45 cents per share, for the corresponding period a year ago.

Sales jumped 12.3 percent to $145.4 million, with sales at stores open at least a year - a benchmark of retail performance - up 6.4 percent. Direct marketing sales, which include the Internet and catalog, increased 0.2 percent.

Bank shares jumped $3.10, or 11.4 percent, to close at $30.31 on the Nasdaq after the company released its earnings report in the afternoon. The company scheduled a conference call for today.

Bank posted a sales increase even as most consumers have cut back on discretionary items, such as clothing, as the rising price of food and gas have cut into their budgets. Men are usually the first to stop buying clothing in a downturn.

An executive for the company said its low prices attracted customers to its stores. Jos. Bank offers frequent sales on its clothing, so frequent that then-New York Attorney General Eliot Spitzer fined the company in 2004, charging that the sales weren't really sales because the discounts were offered on most days.

"We offer great quality product at a good value," David E. Ullman, Bank chief financial officer, said in a telephone interview yesterday. "Even at this difficult time, people are still buying clothing and coming to us because of the value proposition we're offering."

Ullman said the company was able to discount its wares by managing costs in other areas, although he didn't elaborate.

The company's gross margins remained flat, Ullman and analysts said.

"We just made sure we controlled our expenses and were oversensitive with discretionary spending," Ullman said.

But one analyst questioned how Bank could maintain its momentum over the long term. Labor costs and the price of materials to make suits are rising. Higher fuel prices are costing the company more to import and ship its products.

"The customer perceives its great value," said Richard E. Jaffe, who follows the company for Stifel Nicolaus. "[It] has gotten a response from consumers despite macroeconomic concerns."

But he added: "I'm not sure how long you can sustain a business model this way. It is not forever sustainable."

The company also has been questioned in the past for high inventory levels.

But Ullman said yesterday that its inventory helped with sales because it was able to keep product in stock.

"So when a customer goes into our store, he finds what he wants," Ullman said.

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