Short sales mystify clothier

Jos. A. Bank's CEO says there have always been doubters

June 20, 2008|By Andrea K. Walker | Andrea K. Walker,SUN REPORTER

Scott Taylor bought suits from a Jos. A. Bank men's store in Baltimore in 2001 and was so impressed with the service that when he got home, after doing some research, he bought shares in the Hampstead-based company.

He's been happy with his investment, which has grown sixfold. He bought his first shares at about $5. Yesterday the company's shares closed at $30.10.

What puzzles Taylor is why so many investors are betting against Bank by shorting its stock - a bet that the share price will fall. And at Bank's annual meeting yesterday, Taylor asked Bank chief executive Robert Wildrick why.

"I believe in your vision," said Taylor, a colonel in the Army. "I believe in your growth plans. I don't understand why we have so many people betting against it by shorting it."

Though Bank has been weathering the retail downturn - earlier this month it reported an 18 percent gain in first-quarter earnings on a 6 percent rise in sales at established stores - about 82 percent of its roughly 18.2 million outstanding shares were being sold short as of May 27.

A short sale involves shares that investors borrow, typically from a brokerage, and sell at what they hope is a high. The idea is that by the time they have to replace the shares, the shares will be cheaper and they pocket the difference. If, however, the stock goes up, borrowers have to cover the higher price.

Wildrick said the company doesn't know why so much of Bank's stock is being shorted. He said it's hard to defend against short-selling because those investors don't have to disclose their identity.

"It's always discussed," he said during the 20-minute shareholder meeting held at the company's headquarters in Carroll County.

"The problem with that part of the industry is it's not transparent," he said. "Nobody knows who it is."

After the meeting, Wildrick told Taylor that people have always doubted the company's growth plan but that the strategy has worked for the company.

Bank has expanded aggressively in recent years, opening about 300 stores since Wildrick took over in 1999. Its sales have increased from $108 million 1999, to reach $604 million for the fiscal year that ended Feb. 2.

Wildrick said the company will continue to focus on increasing the value of the company and that the market will respond in the long term.

"Any value in the company comes by making the company more valuable," Wildrick said. "And we believe the markets will eventually respond to it."

Taylor said he wonders if hedge funds are manipulating the stock to try and make a quick profit. He said he is satisfied with the investment despite the short-selling.

"I've been happy with the stock," Taylor said.

A second shareholder, Don Sloan, who first invested nearly a decade ago, said the short-selling doesn't bother him.

"Certain things you have to live with," said Sloan, who lives in Phoenix and does sales for a company that provides retail packaging for Bank. "I think the company's growth is essential."

Shareholders voted yesterday to reappoint Wildrick, 64, to the board of directors through 2011. The CEO's contract expires at the end of the fiscal year in January. He would not comment on whether the extension of his stay on the board signaled that he would remain with the company or retire.

andrea.walker@baltsun.com

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