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Why Tailored Brands Stock Crashed Today

By Timothy Green - Dec 13, 2018 at 12:47PM

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A guidance cut was the last thing investors wanted.

What happened

Shares of Tailored Brands (TLRD) tumbled on Thursday after the menswear retailer reported its third-quarter results. Comparable sales growth and an earnings beat were overshadowed by a guidance cut, with the company now expecting lower per-share profit for the full year. The stock was down about 30% at 12:10 p.m. EST.

So what

Tailored Brands reported third-quarter revenue of $812.7 million, up 0.2% year over year but nearly $7 million below the average analyst estimate. Retail comparable sales were up 2.3%, driven by a 1.7% increase at Men's Wearhouse and a 3.8% increase at Jos. A. Bank.

A man in a suit.

Image source: Tailored Brands.

Non-GAAP (generally accepted accounting principles) earnings per share came in at $1.01, up from $0.75 in the prior-year period and $0.07 higher than analysts were expecting. Lower interest expense and a lower tax rate were mostly responsible for the earnings growth. GAAP earnings were hit by a $24 million goodwill impairment charge related to the corporate apparel business.

Tailored Brands' guidance was the real problem. The company now expects to earn between $2.30 and $2.35 per share on a non-GAAP basis for the full year, down from a previous guidance range of $2.35 to $2.50 per share. A trend of lower transactions at Men's Wearhouse that persisted into November led to the more cautious outlook.

Now what

A 30% drop in the stock price certainly looks like an overreaction. Tailored Brands grew comparable sales in all its segments during the third quarter, and it's been aggressively paying down its debt. The company has reduced its debt by $300 million over the past year, and it knocked $40 million off the total in the third quarter alone.

Still, investors are clearly concerned about the weak profit outlook. The stock now trades for just six times the low end of the company's adjusted earnings guidance, a valuation that bakes in plenty of pessimism.

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