Sunday, November 26, 2006

Jos A Bank Clothiers Inc (JOSB) Analysis

We have looked at JOSB a couple of times in this blog. The last time we looked at it, it still was priced for its growth and not for value. Let us look at JOSB at the moment to see if it is a value play now.

First an introduction to JOSB and its businesses. Jos. A. Bank Clothiers, Inc. engages in the design, retailing, and marketing of men’s tailored and casual clothing and accessories. Its product line includes tuxedos, suits, shirts, vests, ties, sport coats, pants, sportswear, overcoats, sweaters, belts and braces, socks and underwear, branded shoes, and other items. The company sells its products through retail stores, catalog, and the Internet, as well as through franchisees.

JOSB has been a fast growing company and was priced as a growth company. However, the earnings growth has declined even though the sales growth has remained impressive. Let us look at the most recent quarter to see how things came out.

The second quarter of 06 looked good, as reported in the 10-Q,

For the second quarter of the Company’s fiscal 2006, the Company’s net income was $7.0 million compared with net income of $5.3 million for the second quarter of the Company’s fiscal 2005. The Company earned $0.38 per diluted share in the second quarter of fiscal 2006 compared with $0.30 per diluted share in the second quarter of fiscal 2005. As such, diluted earnings per share increased 27% as compared with the prior year period. The results of the second quarter of fiscal 2006 were primarily driven by:
20.8% increase in net sales with increases in both the Stores and Direct Marketing (catalog and Internet) segments;
30 basis point increase in gross profit margins;
40 basis point decrease in operating expenses as a percentage of net sales;
The opening of 58 new stores since the end of the second quarter of fiscal 2005.
Management believes that the chain can grow to approximately 500 stores. As of July 29, 2006, the Company had 340 stores opened. The Company plans to open approximately 50 stores in fiscal 2006 as part of its plan to grow the chain to the 500 store level, including 16 stores opened in the first half of fiscal 2006. The store growth is part of a strategic plan the Company initiated in the year ended February 3, 2001 (“fiscal 2000”). In the past six years, the Company has continued to increase its number of stores as infrastructure and performance has improved. As such, there were 10 new stores opened in fiscal 2000 (including two factory stores), 21 new stores opened in the year ended February 2, 2002, 25 new stores opened in the year ended February 1, 2003, 50 new stores opened in the year ended January 31, 2004, 60 new stores opened in fiscal 2004 and 56 new stores opened in fiscal 2005.

Despite the good results of the second quarter, year over year, the growth in EPS was only 4.5%. Let us look at the cash flow and other ratios to see how the company is doing. The free cash flow available to shareholders has declined this year compared to the previous years . This is primarily because of the increased capital expenditure incurred by the company. The increase in the number of outstanding shares also hasnt helped the EPS figure. The company's trailing P/E is attractive at ~15 but this isnt the lowest for the company. If the economy continues to cool off, there could be further compression in the P/E ratio for the company. This happened in the early 2000s. If this scenario repeats, it should present a more attractive buying opportunity.

1 comment:

Anonymous said...

JOSB also caught my eye recently. It appears attractive considering the growth in sales, which doesn't seem to be slowing anytime soon. However, one thing stuck out to me. The inventory turnover is down to 1.1 according to Overall, the efficiency ratios for JOSB look to be headed in the wrong direction. The other factor which is holding me back is the short ratio. Could be a good stock but I also will wait to see if any additional downside presents itself.