Can Small Cap Tailored Brands Go Business Casual?

On Monday, a Wall Street Journal article (Men Ditch Suits, and Retailers Struggle to Adapt) noted that the U.S. men’s suit market has shrunk 8% to $1.98 billion since 2015 (although the pace of the decline has moderated in recent years) with small cap men’s wear stock Tailored Brands (NYSE: TLRD) seeming to bear much of the brunt of changing consumer tastes. 

As the leading specialty retailer of men’s tailored clothing and largest men’s formalwear provider in the U.S. and Canada, small cap Tailored Brands was created following the 2014 acquisition of Jos. A. Bank by Men’s Wearhouse. The Company serves customers through an expansive omni-channel network that includes over 1,400 stores in the U.S. and Canada as well as branded e-commerce websites. Brands include Men’s Wearhouse, Jos. A. Bank, Joseph Abboud, Moores Clothing for Men and K&G plus the Company operates an international corporate apparel and workwear group consisting of Dimensions, Alexandra and Yaffy in the United Kingdom and Twin Hill in the United States.

Note that Tailored Brands has been without a CEO since September when its former chief retired and shares fell off hard (around 25%) two weeks ago when the Company reported fiscal fourth quarter and year ended February 2, 2019 results plus provided guidance for the first quarter of fiscal 2019: 

Net Sales Summary(a)

                     
       

Net Sales
(U.S. dollars,
in millions)

   

% Total
Sales
Change

   

Comparable
Sales
Change(b)

                     
Retail (a)       $712.4     (9.5%)     (1.5%)
Men’s Wearhouse (a)       $375.0     (9.6%)     (3.2%)
Jos. A. Bank (a)       $215.4     (6.7%)     (0.5%)
K&G       $ 73.9     (7.5%)     0.9%
Moores(a) (c)       $ 48.0     (8.8%)     2.8%
Corporate Apparel       $ 55.7     (23.3%)      
             
Total Company(d)       $768.1     (10.7%)      

 

Moving forward, the Company expects comparable sales for:

Men’s Wearhouse to be down 3% to 5% Jos. A. Bank to be down 3% to 5% Moores to be down 5% to 7% K&G to be flat to up 2%.

The Chairman stated:

“While all of our retail brands delivered positive comps for the full year, during the fourth quarter, comps at Men’s Wearhouse and Jos. A. Bank were down and this trend has continued into the first quarter of 2019. We attribute the current softness to both the macro-environment as well as the need for us to execute more quickly and effectively on our core growth strategies: deliver personalized products and services, create inspiring and seamless experiences in and across every channel, and build brands that stand for something more than just price.”

After earnings, B.Riley FBR analyst Susan Anderson cut her price target from $20 to $11 noting the particularly sharp same-store sales declines at Men’s Wearhouse and Jos A. Bank when she lowered her rating on Tailored Brands stock from Buy to Neutral. She said the drop in sales was “partially due to misalignment in product mix with the customer’s expectations, particularly in terms of a lower penetration of business casual options.”

Anderson also added in a phone interview with Barron’s that the Men’s casual is an oversaturated market while Tailored Brands still has “too many stores.” Plus:

“It’s even more difficult for them than these smaller retailers that really have nothing to lose. It’s really important that they drive loyalty and cater to the consumer’s needs… They’ve been slow to move toward higher penetration of business casual. They could potentially have a higher mix. I think it’s definitely a move in the right direction, but it could be an image for the consumer that they have a change.”

The Wall Street Journal did note that at Jos. A. Bank’s newly renovated Midtown Manhattan store, the ground floor is dedicated to jeans, khakis, dress shirts and blazers while suits are relegated to the upper level. They also quoted Mary Beth Blake, Jos. A. Bank’s brand president, as saying that tailored clothing retailers have even more of a reason to exist now that suits are out of favor:

“It’s harder for men to dress business casual. They need more assistance… We want to send the message that we can help with more than just suits”

That does seem to make sense and remember: Its hard enough to buy a suit off the rack that actually looks good on you – so forget buying one over the Internet as it probably needs tailoring (although the Company will be increasing its e-commerce presence). 

Nevertheless, it could still be a long time before Tailored Brands can safely be considered as a turnaround play.

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