Jos. A. Bank Clothiers (JOSB) sells tailored and casual clothing aimed at the male professional. The stock sold off sharply, after it reported its April quarter, on big concerns over the growing level of inventories.
Retailers, as a rule, live by moving inventories quickly and keeping the level of unsold goods low. But to followers of JOSB, this has been part of management's approach to grow stores and sales.
At the end of 2005, JOSB had 324 stores, and management was projecting that stores at the end of 2007 will be 434, which would be a 34% increase.
The level of inventory has grown as well. Inventory days at JOSB have doubled to 334 days. The reasoning is simple: JOSB customers shop only 1-2 times per year. JOSB, by having more sizes (not variety), is helping drive sales and increase margins.
JOSB is now coming to an end to this inventory buildup, and now margin expansion should accelerate, as will earnings growth. These sales may also be insulated from an economic downturn.
JOSB customers, primarily professional males, have an annual income over $100,000. These spending habits may not be as hampered by the rise in gas prices or slowdown that may squeeze the middle class.
This view may be supported by examining JOSB during the last recession, during which they produced 6% same store sales growth. In July, JOSB delivered 16% same store sales and 28% total sales growth.
On a valuation basis, JOSB is an inexpensive stock and sells at discounts to the market, and its industry. Earnings projections for this year are estimated to be $2.62 and $3.38 in 2007. This is a 30% annual growth rate from 2005. Free cash flow is also positive and debt to total capital is a modest 25%. Price/sales is currently 1.1x, and JOSB sell at 15% discount to its peers. PEG valuation comes at about 0.6, which makes JOSB valued at less than half its peers and a third of the market. The price is currently around $28.49.
Just assuming a market or industry peer P/E multiple of about 17 times, on 2007 estimated earnings placed a valuation of over $57 on JOSB; a 68%+ gain.
Given the depressed price for JOSB and current earnings expectations, JOSB has found itself in the bargain bin of retail stocks. For value conscious shoppers, this may be a solid value.