Tailored Brands (NYSE:TLRD), the parent company of Men's Wearhouse and Jos. A. Bank, reported third-quarter results Thursday, and based strictly on the numbers, the company did all right. The key figures met or exceeded expectations. But the company also delivered some unflattering looks forward, cutting guidance, which sent its stock directly to the discount rack.
In this segment of the Market Foolery podcast, host Chris Hill and senior analyst Jason Moser consider what future a company devoted to supplying men with business and formal attire can have in a world gone casual.
A full transcript follows the video.
This video was recorded on Dec. 13, 2018.
Chris Hill: But we're going to start with some earnings from Tailored Brands. The rough week for apparel just gets rougher. Tailored Brands is the parent company of Men's Wearhouse and Jos. A. Bank. That stock is down 27% this morning on third-quarter results that, on the surface, don't look 27%-negative bad. They don't look great. You tell me, what's going on here?
Jason Moser: Well, Chris, you're going to hate their guidance. I guarantee it. Really, in all honesty, that's what it is. I think, to your point, the results for the quarter were not really bad at all. They met or exceeded the expectations. It's really about the forward guidance. They guided down from previous goals. We know how the market tends to receive news like that. This is an interesting company. For the two to exist together like this, it probably makes the most sense.
Hill: Jos. A. Bank and Men's Wearhouse.
Moser: Yeah. They do very similar things, so you might as well just exist as one strong business. And it's as strong as it could probably be in the environment. I think the biggest challenge they face is this secular move away from business attire. More and more places are adopting these casual work environments where the expectation doesn't exist like it used to, where you had to dress up and wear a tie or a suit to come to work. I use us as an example. You and I both know from companies that we see and talk about all the time, more and more companies are adopting that casual environment. I think that's part of the challenge there.
Now, it's not to say they can't deal with that. They can come up with new types of offerings, and maybe steer away a little bit from that formal business attire. But retail is very difficult. They have a bit more than $1.1 billion in debt on the balance sheet. When you have that, along with a company where the top line has essentially hit a brick wall, and margins are now beginning to compress, their biggest challenge, as noted in the call, is getting more people in the stores to buy stuff. The only way you can really do that is to offer more deals, entice them to come in and buy more stuff. That's fine, but what that ultimately does is plays out on margins, and then you condition your consumers to essentially wait until stuff goes on sale. It's kind of like that Bed Bath & Beyond scenario there. Granted, I think I'd probably find myself in a clothing store before I'd find myself in a Bed Bath & Beyond store. But there's a parallel there.
Hill: I'm glad you mentioned the secular decline in business attire. That was one of my thoughts when I was looking over this news this morning, extrapolating my own life and the attire here at the company. There was a point in time where I had a bunch of suits. I don't anymore.
Moser: I was the same way.
Hill: I don't need them. In some ways, maybe it is helpful for Tailored Brands that the pathway ahead of them for success, while not necessarily easy, I think it's clear, and I think you hit on it, they need to start moving away from suits, and they need to start offering more casual clothes. There's a lot of brand work that has to go into that. I know, for a lot of people, that's a squishy thing. More specifically, I think that if they were to undertake maybe a two-year campaign, to say, "Look, not only are we going to expand what we're offering in terms of clothing," because one thing going relatively well, I think, for Tailored Brands, certainly in the case of Jos. A. Bank, nobody looks at their offerings and says, "That's bad-quality stuff." They sell quality clothing. If they were able to expand that down the scale, away from the suits, more toward Banana Republic, and start eating into Banana Republic's turf, and that sort of thing. And, along with that, doing the marketing spend that they would need to do to really move that brand perception. "We're not just suits. And, by the way, we're not just suits on sale," as you said. It's, "We offer all range of clothing for men."
Moser: Yeah. Become more things for more people. We say that a lot. In this case, it may very well be the easiest way to continue to grow. I think about brands that exist out there today that could perhaps complement what these guys are doing. One that comes to mind, have you ever heard of UNTUCKit?
Moser: It's essentially a shirt built on this notion that we guys are tired of tucking our shirts. So you've got these button-down shirts that are tailored so that they hang just the right amount below the belt line, and it looks classy untucked. Maybe they need to think about bringing a brand like that under their umbrella. Maybe there's an acquisition to be made there at some point, to be able to offer more breadth to the catalog there. But again, the problem still exists. They have a big slug of debt on the balance sheet. You have to account for that.
If they decide to issue shares, will that dilute shareholders? They're in a little bit of a predicament because of the financial position that they're in. It's not dismal yet, but it could get there pretty quickly if they're not careful.
Hill: We're a couple of weeks away from our annual tradition on Motley Fool Money of our first show of the calendar year; we do a preview. I'm just going to go ahead and say, my business prediction for 2019 is private equity comes in to Tailored Brands. This is a viable business that is stumbling right now. And it's a $700 million market cap company. Somewhere in private equity land, people are looking at this business, they're listening to what you're saying about UNTUCKit and those types of moves into casual space, and they're rubbing their hands together with glee and saying, "We can fix this, but we need to start buying some shares."
Moser: I think that's a reasonable observation. If anyone's looking at this company, right now is a pretty darn good time to do it.