How poetically sweet it is: Mens speciality retailer Jos. A Bank Clothiers (JOSB:NSDQ), known for its never-ending sale of huge markdowns (of course, having starting with even bigger markups), may find its current stock price has become heavily discounted, with ‘further reductions’ on the way.
This is a company that a lot of investors have disliked for a long time with its gimmicky sales, same-old stuff, and yet stubborn refusal to capitulate. This is evidenced in its 20% short interest for at least the last 2 months. That short interest number is sure to grow as the company pulled one of the all time worst ways to break bad news: slip it out late Friday just after all the extended trading sessions have closed. Psychologically, it’s an admission that you had to make but one which you would have rather never have made and which you hope will be missed or forgotten over the weekend. Wrong. It just gives the longs more time to brood in trepidation, and the shorts more time to lay their plans come Monday morning. What gives?
In the all important Q4 for retailers, JOSB came up short on sales and coupled with higher marketing expenses and lower gross margins the company now sees full year earnings will be about 20% lower than in 2011. That will bring their 3 year string of increasing earnings to a grinding halt. According to my calculations that translates into eps of $2.80 vs. the $3.76 consensus number. But it’s also the way the company dealt with its poor results which is likely to further wrangle investors. Instead of saying their merchandise was not resonating with consumers, the company put the blame principally on warmer weather which affected their warm weather clothing but also on Hurricane Sandy, the elections and the uncertainty of the fiscal cliff.
What’s worse is that the company did not address what it will do remedy its current difficulties, but only stressed the already known positives of remaining profitable, strong balance sheet and cash flows and other meaningless milestones. This unresponsiveness to adversity is usually a telltale sign of a company which will eventually get itself into much deeper water. With very little insider ownership (1%) and paradoxically very large institutional ownership (over 100%), if a few large institutions decide it’s time to throw in the towel on JOSB, there may not be much to hold this thing afloat.
The contrarian view, or at least a mitigating view, is that JOSB had one bad quarter which happens to all retailers. In fact in the Nov. 28th Q3 earnings release, the company already indicated there would be pressure on Q4 margins and that the quarter had started slow. In response to that news the company shed around 12%. Most of that has been retraced with shares closing on Fri. at $46.27. In addition, the company in their premlinary update claimed that “customers responded well to our suit promotions”.