Never have I had money burning a hole in my pocket like Jos. A. Bank (NASDAQ: JOSB). First the company went back and forth with Men's Wearhouse (NYSE:TLRD), each trying to buy the other. While that tussle continues, Bank decided that Eddie Bauer might also fit the bill -- because, somehow, suits and rain jackets are both part of the long-term strategy. It's possible that Jos. A. Bank has a master plan in mind that does involve both businesses, but it also seems possible that the company just doesn't know what to do next.
Eddie Bauer on the block
In its announcement of the acquisition, Jos. A. Bank said that Eddie Bauer offered opportunity because the two companies serve a "demographically similar family of customers." Similar is the important word here, opening up the interpretation to a broad range of options. Jos. A. Bank styles itself as the "Expert in Men's Apparel" and Eddie Bauer sells an $80 Solstice Knot Dress. So, you'd be forgiven for not finding that similarity right away.
The overlap is in the type of customer, not the gender. Both businesses sell middle-class, casual clothing aimed at the suburban lifestyle. Heck, there used to be an Eddie Bauer-branded Ford Explorer.
Jos. A. Bank needs something to get the business up and moving again. In a separate announcement today, the retailer updated its fourth-quarter guidance with less than stellar news. Comparable sales for the quarter are estimated to have risen a mere 1.8% over the previous year, with management citing weather as a major drag on sales.
To counteract this trend, the company increased its promotional activity, but this obviously has had a negative impact on gross margin. Eddie Bauer may offer the business a new way to generate sales without having to rely on one up-and-down brand.
Men's Wearhouse, ever unattainable
Adding Eddie Bauer to the lineup is going to complicate things between Men's Wearhouse and Jos. A. Bank. The cash spent on the Bauer acquisition -- $564 million -- gives the company less to work with in its bid for Men's Wearhouse. Additionally, the newly enlarged company makes it a more difficult target for Men's Wearhouse to buy out. Jos. A. Bank seems to have no interest in being purchased, and a strongly worded letter sent to Men's Wearhouse earlier this month backs that up.
Analysts now seem to believe that the hope of these two ever tying the knot is dead. In its own statement, Men's Wearhouse said that it will reevaluate its options after the Eddie Bauer announcement. The tone of the letter leaves little to the imagination, though, and it seems unlikely that another bid is forthcoming.
For Jos. A. Bank, Eddie Bauer may offer it a new lease on growth, but it doesn't address any brand problems that the parent company is facing down. Sales of Bank's shirts aren't going to pick up because it now owns Bauer, but it may get a boost from operational efficiencies. Maybe that's enough to propel it ahead, but it's going to take time for any overlap to show a boost to the bottom line.