I bet no one saw coming the big improvements Tailored Brands (NYSE:TLRD) enjoyed from its Jos. A. Bank division in the most recent quarter. Sure, the men's suits retailer that was acquired at a cost of $1.8 billion has been steadily improving, but after years of reporting negative same-store sales -- at one point they plunged 32% -- the nearly 8% jump in comps had to be a surprise.
Of course, when you fell as far as Jos. A. Bank did, any gain would look monumental. Still, it's a remarkable turnaround for a chain that has squandered so much shareholder value for Tailored Brands investors. Indeed, last year the men's clothing store took a massive $1.15 billion non-cash charge related to goodwill and intangible asset impairment charges surrounding the Jos. A. Bank brand. Basically, Tailored Brands was saying the value of its acquisition was now worthless. So any sort of positive development seems like good news.
But it depends upon how you define "good"
However, it's not as good as it might seem. First, it's not as if all Jos. A. Bank stores saw a boost. There are 11% fewer Jos. A. Bank stores operating today than there were a year ago.
Also, even though the division was seeing more traffic, management said it took advantage of more customers coming through its doors to clear out older seasonal merchandise and lower overall inventory levels. That sounds like there was some substantial discounting going on, which was underscored when it was admitted that despite higher numbers of transactions and greater units sold per transaction, average unit retail was down.
Revenue in the year-ago period for the division came in at $186 million; this time around it was only $174.3 million. That's certainly a function of closing stores, but also of discounting.
Lowering the bar
Moreover, as the Jos. A. Bank business improves, the easy gains have been made. In the third quarter, it will be going up against comparables that were down less than 10%. While that would be considered a disastrous performance for most retailers, that was a significantly better result than the near-15% decline the division saw back in 2015. Jos. A. Bank had fallen so far that just getting to the point where it can see the rim of the sinkhole it's in is an achievement.
It's also distinctly possible the gains Jos. A. Bank are making today are coming directly from sales at Men's Wearhouse, the bigger, once better rival chain. Comparable sales were down 2.2% at Men's Wearhouse in the second quarter as revenue dropped 5.5% year over year. This is a sequential improvement in comps, which were down 3.1% in the first quarter, but a reversal of the 2.9% gain it generated a year ago. Men's Wearhouse now finds itself in a weakened state from the efforts to resurrect Jos. A. Bank.
Tailored Brands is still struggling, with more than $1.5 billion in debt while only having $112 million in cash. It's also still suffering from the severed relationship it had with Macy's for tuxedos, as well as the uniform debacle with American Airlines that will cost it the contract when it expires in 2020. Despite the slight improvements the wounded retailer enjoyed this quarter, it's nowhere near ready to declare vindication for having made the purchase of Jos. A. Bank.
One quarter does not make a trend, and though it's looking to be heading in the right direction, Jos. A. Bank and its Tailored Brands parent should not be considered healthy until all the divisions can report more than threadbare results.