Revisiting Jos. A. Bank

It's been almost 30 months since I wrote about the Five Reasons to Love Jos. A Bank Clothiers (Nasdaq:JOSB). It's time I catch up with the Maryland-based retailer of men's clothing. Since Sept. 10, 2009, it's achieved a total return of 58% compared to 31.6% for the Dow Jones U.S. Total Stock Market Index. By revisiting the 5 points that gave it an edge back in 2009, perhaps I'll be able to shed some light on whether it can keep it going. (For more, see Earning Forecasts: A Primer.)

Jos. A. Bank's 2011 third quarter earnings per share increased 20% to 54 cents, and for the first nine months of 2011, its earnings per share increased 18.6% to $1.91. Back in 2009, its third quarter earnings increased 26% to 63 cents per share, and for the first nine months of 2009, its earnings per share increased 27% to $1.93. On a per share basis, the numbers appear weaker than in 2011. However, today's calculation is based on 27.97 million shares, 9.4 million more than in 2009. The retailers operating income in the third quarter of 2011 was $24.2 million, $4.9 million or 25% higher than two years earlier. On an operating margin basis, its 2011 margin of 11.5% is 40 basis points lower than in 2009. Given the state of the economy, I'd suggest that its profitability remains very strong.

In my earlier article, I mentioned that the company was extremely consistent in both earnings before interest and tax profitability and revenue growth over the previous decade. In its third quarter report, CEO Neal Black stated, "Despite the continued pressure we are facing from the national economy, our business model is performing very well... With this quarter's results, we have achieved earnings growth in 32 of the past 33 quarters when compared to the respective prior-year periods, including 14 quarters in a row." So, with the exception of one disappointing quarter, earnings and revenues have continued on a consistent move upward. This speaks very well of its business model.

Back in 2009, 28.4% of its float was short, higher than Men's Wearhouse (NYSE:MW), Nordstrom (NYSE:JWN), Macy's (NYSE:M) and even Sears Holdings (Nasdaq:SHLD). Today, that's down to 19.2%. It's strange how many shorts exist for a company that's proven time and again how to make money. Sears on the other hand has seen a steady decline in its business since the article appeared, yet only 11% of its total shares are available for loan. Edward Lambert's doing everything in his power to boost the price of its stock.

While the retail industry loves to focus on same-store sales, there are so many intangibles to the success of any retail business. Furthermore, same-store sales can and do come at the expense of profitability. Sometimes it's better to have flat sales and decent profits than the other way around. Jos. A. Bank's third quarter same-store sales increased 14.6% thanks to an increase in traffic and items per transaction. Gross margins, as a result of higher promotional activity, were slightly lower but nothing to be concerned about. What's exciting is the fact it's getting its online business moving in the right direction through the use of technology and human resources. In the third quarter, it increased online and catalog revenue by 28.6% to $18.6 million or 8.9% of its overall total. By the end of 2012, its online business should represent 10% or more of its overall revenue. That's important when you consider that $1 in online revenue generates about 62% more profit than a dollar from the stores. Good retail is all about multi-channels and that's what Jos. A. Bank's critics don't get. If you don't have enough online inventory to ship out immediately, chances are you lose permanent business. Therefore, rising finished goods, while important to keep an eye on, doesn't necessarily indicate that management doesn't have a control of their inventory.

This continues to be an important part of its business model. In 2011, it will have opened between 50 and 53 stores, including 12 to 13 factory outlets. In 2012, it plans to open between 40 and 50 new stores including 10 to 12 factory outlets. Its goal, as it was in 2009, is to operate 600 full-line Jos. A. Bank stores in the U.S., which includes 50 to 75 factory outlets. It finished the third quarter with 507 full-line stores and 23 factory outlets. Therefore, it should reach its goal in three to four years, at which time, it will continue to work on generating greater revenue from its online business. Look for cash flow to shoot up at that point.

From where I sit, Jos. A. Bank continues to be a retail success story and a stock worth owning for a long time to come. (For additional reading, check out 5 Must-Have Metrics For Value Investors.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free! At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.