Fancy-but-affordable men's clothier Jos. A. Bank (NASDAQ: JOSB) reported earnings this week that, similar to all of retail, showed a weak few months of business; but the stock ended up swinging the other way, climbing nearly 6% the day earnings were announced. Net income fell substantially, even missing analyst estimates, though there are some encouraging signs in the business. This quarter has beaten down nearly all of the major retailers, from big box stores, to niche apparel companies. Undoubtedly, some of these sell-offs are creating bargains. The question for Jos. A. Bank is whether this company will pull out of the rut of retail's misfortune faster than the rest.
Earnings recap
For Jos. A. Bank's second quarter, the company saw drops in sales and income that were quite similar to the rest of the industry, though far better than some other players. Revenue dropped slightly more than 10%, to $232.5 million, which seemed to come in roughly in line, if slightly above, Wall Street's expectations.
The company was still able to pull in a profit for the quarter (far from a guarantee for many clothing companies recently), hauling in an adjusted EPS of $0.51 per share. Analysts had been expecting $0.01 better, though that did not hold the stock down. Management attributed the soft top line to a weak heavy-promotional season, and noted that day to day, non-promotional sales actually performed quite well. Combined same-store sales and Internet sales showed a disheartening drop of 16% from the year-ago quarter.
While the company did not provide guidance as to its coming quarter and the rest of the fiscal year, CEO Neal Black mentioned that the current quarter was actually encouraging, and that the sales declines may have "bottomed out." Analysts, on the other hand, have been lowering their estimates.
Things certainly weren't great, but had it not been for conservative actions by management, Jos. A. Bank could have had a much worse quarter.
Good retailers are good retailers
A well-managed company cannot insulate itself fully from industry tides, and Jos. A. Bank is no exception. But the management team here is smart one, and the products it sells seem to be gaining popularity for reasons other than the dirt cheap promotions. The company limited its marketing expenditure, and has managed a cost-focused business. This is why gross margins have stabilized, improving to 59.1% from 58.7%.
As the retail environment improves, and it (at some point) certainly will, Jos. A Bank may be in a better position than most to move quickly upwards, and deliver more attractive results. At 16 times forward earnings, the company hasn't taken nearly the hit in recent months that other retailers have, and still maintains a near fully valued stock price for projected earnings. However, it is an attractive stock based on its management and product. A good retailer over time is a great company to follow, as industry trends can create pricing inefficiencies.
If Jos. A. Bank stock takes a hit in the near future and valuation adjusts, consider picking up a few on-sale shares.
