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The Jos. A. Bank Brand Is Apparently Worthless

By Rich Duprey – Mar 16, 2016 at 6:42AM

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Parent Tailored Brands is taking a big charge to goodwill related to its acquisition.

Following a disastrous merger with Men's Wearhouse, once leading men's clothier Jos. a. Bank has been deemed virtually worthless by parent Tailored Brands. Photo source: Mike Mozart.

The unraveling of the once-great Jos. A. Bank brand is nearly complete. Tailored Brands (TLRD), the parent company of the men's clothing store that until last month was known as Men's Wearhouse, says it's been unable to stem the hemorrhaging of sales at the clothing store following its attempt to halt overly aggressive discount policies, and now anything of value associated with Jos. A. Bank is virtually worthless.

Up in smoke
In a filing with the SEC reporting its fourth-quarter earnings results, Tailored Brands said it was taking a massive $1.15 billion non-cash charge related to goodwill and intangible asset impairment charges surrounding the Jos. A. Bank brand. That included all of the following:

  • The entire carrying amount of Jos. A. Bank's goodwill, or $769 million.
  • A charge of $335.8 million associated with the Jos. A. Bank tradename, which leaves its remaining value at just $113.2 million.
  • The entire carrying amount of the Jos. A. Bank customer relationships of $41.5 million.
  • The writedown of favorable leases connected with its acquisition of Jos. A. Bank valued at $7 million.

In the end, the $1.8 billion Tailored Brands spent acquiring its rival was almost completely wasted, a stunning degradation of shareholder value that investors ought to demand an accounting of.

In addition to the massive charges the retailer is taking, it also said it is closing as many as 139 Jos. A. Bank stores, 22% of the total currently in operation. All 49 outlet stores will be closed as will 80 to 90 regular retail stores. Additionally, Tailored Brands will close two-thirds of its MW Tux stores along with a handful of Men's Wearhouse outlet stores. In all, some 250 stores will be shuttered.

The tuxedo business, at least, is simply part of a transition occurring because of its partnership with Macy's (M 3.75%), unimaginatively called Tuxedo Shop @ Macy's. It plans to open 166 such store-in-stores this year with 122 more opening in 2017. The benefit to Tailored Brands, of course, is it lowers its overhead considerably, while helping the department store chain better compete against rivals like J.C. Penney (JCPN.Q), which may ultimately be a big beneficiary of the Jos. A. Bank debacle.

Try this on for size
While the once-troubled retailer has taken a multipronged approach to regaining its financial footing, J.C. Penney's men's department has not taken a back seat in the department store's rehabilitation, and it noted in its own fourth-quarter earnings conference call that despite the unseasonable weather that sank many of its competitors, its men's department notched positive comparable sales growth during the period (as did its women's and kids' departments too).

Menswear is important to most department store chains. It comprises a quarter of J.C. Penney's total sales, which is estimated to have a better than 4% share of the more than $60 billion U.S. men's apparel market. Its private label Stafford brand is actually the fourth-largest tailored clothing brand in the U.S. Macy's also sells a lot of men's clothes, typically accounting for 23% of its $27 billion in annual revenues.

A serious miscalculation
Tailored Brands screwed up in several ways with its acquisition of Jos. A. Bank. Foremost, perhaps, was its decision to force customers to go cold turkey on sales. Having been conditioned to expect steep discounts on suits -- what Tailored Brands CEO Doug Ewert termed buy one get seven free -- it all but eliminated sales and Jos. A. Bank's customers abandoned it. Where fourth-quarter comparable sales rose 4% at Men's Wearhouse and almost 2% at the discount K&G line, they plunged 32% at Jos. A. Bank.

Moreover, it misjudged the change in market sentiment that began trending toward more casual wear (think suit jackets over t-shirts and jeans), a style shift that can work in Men's Wearhouse's favor because of its more contemporary and fashion-forward styles, but against Jos. A. Bank because of its focus upon more traditional clothing.

With considerable overlap in stores in the markets they serve, there was always the likelihood that store closings would be necessary, but management's bungling of the acquisition is necessitating a meat cleaver approach that is gutting what's left of the business.

Companies always tout the "synergies" they'll realize from joining together, but it was doubtful from the beginning whether they would ever be realized. Now Tailored Brands has admitted what many feared: that the Jos. A. Bank brand is now worth virtually nothing.

Rich Duprey owns shares of J.C. Penney Company. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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