Tailored Brands (TLRD +0.00%) is down 26% this morning after reporting another quarter of declining sales. The owner of retail brands like Joseph A Bank and Men's Wearhouse also announced it would be halting its dividend, with an emphasis on paying down debt. Couple that with forecasts for lower profits, and there's a lot to be concerned about.
Financials
Total net sales revenues fell 4.1% in the quarter to $789.48 million. Overall, there's just not a lot of good that can be said about Tailored Brands' second quarter. This is a company with a lot of work to do.
| Metric | Q2'19 |
Q2'18 |
| Revenue | $789.48 million |
$823.43 million |
| Operating Income | $60.59 million |
$87.99 million |
| Net Income | $34.27 million | $49.24 million |
| Earnings per share (Diluted) | $0.68 | $0.97 |
Operating income is weakening quickly, declining 31.1% to $60.59 million in the second quarter alone, as gross margins suffered. Net income declined 30.4% to $34.27 million. On a per share basis, earnings broke down to $0.68 per diluted share; a 29.8% decline year over year.
The sales trends are plain bad
On a comparable sales basis, the declines were felt across the board. Excluding the corporate apparel side of the business, comparable sales across the company's retail brands declined 3.6%. Men's Wearhouse, their most important piece of the business, saw comp sales declines of 4.3%. Looking ahead, there doesn't look to be any light on the horizon. Third quarter guidance anticipates comp sales to continue their decline, with Men's Wearhouse taking a 3%-5% hit. Joseph A. Bank, the second largest piece of the business, is expected to have comparable sales declines of 2%-4%.
Source Image: Getty Images
Moves going forward
CEO Dinesh Lathi did express optimism in the earnings release. The executive noted that the company is seeing "early customer response to our initiatives" and he felt confident that the new strategy of personalized products/services, improved experiences, and meaningful brands would lead to positive comparable sales.
I think there's a lot of work here to accomplish what was laid out in the earnings release. When you think of this company's brands, you think of suits, jackets, and dress clothes. While we certainly do need these types of apparel, it's a more specialized market. The retailers that seem to be succeeding right now are the ones that offer diversified holdings, or they're in the athleisure market. Even if the company were to offer a broader range of jeans or t-shirts, Men's Wearhouse is not going to be your instinctual first stop for that sort of thing.
The sale of the corporate apparel business brought Tailored Brands a nice $62 million, and has given them some capital to invest in business improvements. Even so, that's a pretty small sum when you consider the company finished the quarter with more than $1.14 billion in long term debt on the books.
At the end of the second quarter, the company had total shareholder's equity of $4.56 million. Compare that to the stocks market capitalization of $265 million, and there's an inherent disconnect here. The stock might be cheap from a price to earnings perspective, but the balance sheet tells another story. Even with the cash infusion from the corporate apparel sale, the book value won't come close to what the market is asking. The stock doesn't seem like a good fit right now. I certainly won't be looking at this pullback as any sort of buying opportunity.
