Jos A. Bank Misses Earnings; Merger With Men’s Wearhouse Still Planned

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Jos. A. Bank Clothiers Inc. (NASDAQ:JOSB) is a designer, manufacturer, retailer, and direct marketer of men’s tailored and casual clothing, as well as accessories in the United States. Its product offerings include suits, tuxedos, dress shirts, sportcoats, dress pants, overcoats, vests, ties, sportswear, sweaters, belts, socks, underwear, and other products for formal, business, business casual, sportswear, and golf needs.

The company sells its products primarily under the Jos. A. Bank label through its own and franchised stores, catalog, call center, and on the internet at josbank.com. It also sells branded shoes from various vendors and operates as a retailer of tuxedo rental products. The company operated 633 stores in 44 states and the District of Columbia and will soon be undergoing a merger with competitor Men’s Wearhouse (NYSE:MW). But is Jos. A. Bank worth the acquisition costs for Men’s Wearhouse?

Men’s Wearhouse is merging with Jos A. Bank to reach more customers and grow its business. However, Jos. A. Bank recently missed its earnings estimates by 8 cents per share. The company’s adjusted earnings per diluted share were 32 cents for the first quarter of fiscal 2014, representing a 10.3 percent increase compared to adjusted earnings per diluted share of 29 cents in the first quarter of fiscal 2013.

Adjusted net income was $9 million for the first quarter of fiscal 2014 compared to $8.1 million in the same period in fiscal-year 2013.The adjusted earnings per diluted share and adjusted net income for the first quarter of fiscal year 2014 exclude expenses of approximately $75.4 million, or $1.65 per diluted share, of so-called “strategic activity costs,” which were fees and expenses related to the company’s planning activities.

This includes a $48.5 million termination fee and expense reimbursement paid to the owner of Eddie Bauer. It also has legal and professional fees and expenses incurred in connection with various merger and acquisition activities with Men’s Wearhouse as well as incremental incentive compensation related to the merger transaction with Men’s Wearhouse. After deducting the $75.4 million of these costs, GAAP net loss was $37.1 million, or $1.33 per diluted share, for the first quarter of fiscal year 2014. GAAP net income in the first quarter of fiscal 2013 was $8.1 million, or 29 cents per diluted share, as there were no adjustments to income in this period.

R. Neal Black, president and CEO, said: “We are pleased to have continued the positive trend of increases in adjusted earnings that started in the second half of 2013. Comparable brand sales increased by double digits in the first two months of the quarter but then slowed after Easter resulting in a strong 8.4% increase for the quarter.

“As we begin the second quarter, we had solid sales again in fiscal May 2014 as we generated an estimated total sales gain of approximately 7.7%. However, our gross profit margin rate declined in May as we aggressively sold clearance goods left over from spring 2013 and our sales and marketing expenses increased. We are therefore cautious as we approach the critical Father’s Day selling period as we attempt to balance strong sales with the appropriate amount of clearance markdowns and advertising expenses.”

Looking ahead, the company will need to step up and continue to deliver growth as it did in recent years to help the merger with Men’s Wearhouse go smoothly. The earnings miss was quite significant, missing projections by 20 percent. However, revenues were in higher. Given the merger, the stock has traded range bound within pennies since the spring. Thus, I can only assign a hold rating. However, the impact to shareholders of Men’s Wearhouse of the merger seems positive despite the earnings miss. With Jos.A Banks’s recent performance, the merger will deliver Men’s Wearhouse much-needed growth.

Disclosure: Christopher F. Davis holds no position in Jos. A. Bank and has no plans to initiate a position in the next 72 hours. He has a hold rating on the stock and a $67.50 price target.

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