Men's Wearhouse Plunges on Free-Fall in Jos. A. Bank's Sales

  • Shares decline 27 percent amid signs merger is faltering
  • Company says it will continue to make principal loan payments

Men’s Wearhouse Inc.’s stock and bonds plummeted after the company warned that its stuggling Jos. A. Bank unit could force it to miss a forecast, the latest sign the merger of the two menswear chains is faltering.

Same-store sales at Jos. A. Bank have fallen more than 35 percent this quarter through the first week of December, the Houston-based company said in a statement Wednesday. That compares with a 5.5 percent gain at its other brands. As it copes with the fallout, the company is reorganizing its business into a new holding company next year called Tailored Brands.

“It caught people by surprise how bad Jos. A. Bank has been doing,” said Noel Hebert, an analyst at Bloomberg Intelligence. “People are saying to Men’s Wearhouse, ‘What are you doing with the Jos. A. Bank business?”’

The warning cast further doubt on the troubled integration of its former rival, acquired by Men’s Wearhouse last year for about $1.5 billion. The idea was to find synergies between the two national suit chains, which didn’t have a large overlap of customers. But revamping Jos. A. Bank has been more challenging than expected, Chief Executive Officer Doug Ewert said on Wednesday. The company is now working with consulting firm Alix Partners to examine more aggressive steps, such as job cuts.

“We are looking at every opportunity for cost reduction, including store rationalization, labor, advertising and all relevant shared service costs,” Ewert said in the statement. “We are challenging all assumptions and are fully focused on accelerating the Jos. A. Bank recovery."

Men’s Wearhouse, which began trading Thursday without the right to the company’s next dividend, fell as low as $13.55 in New York trading. That constitutes a 26 decline if the effect of losing the payout is excluded. That’s on top of the stock’s 58 percent tumble this year through Wednesday’s close.

Bonds Plunge

The price of the company’s $600 million of 7 percent bonds due 2022 also plunged, dropping 8 cents to 65 cents on the dollar, according to Trace, the Financial Industry Regulatory Authority’s price-reporting system. The decline in the debt, which had been trading for more than 104 cents on the dollar just over a month ago, has pushed the yield to almost 16 percent.

Men’s Wearhouse also said it wouldn’t be paying down its debt this quarter beyond the scheduled principal payment of $1.75 million on its term loan. The company will delay deciding whether to make optional prepayments until next year, it said on a conference call. The retailer doesn’t plan to make changes to its dividend payment and would consider making bond repurchases when it resumes optional debt repayments, Chief Financial Officer Jon Kimmins said on the call.

If Jos. A. Bank’s problems continue through the rest of the quarter, the company risks missing the low end of the forecast it gave last month, Men’s Wearhouse said.

“This poorly thought-out acquisition, by such a high-quality men’s retailer such as The Men’s Wearhouse, just perplexes me,” said Steven Ruggiero, a retail analyst at RW Pressprich & Co. “Men’s Wearhouse has a good market presence that likely will enable it to come out of this tailspin, but not before additional losses.”

Phasing Out

Men’s Wearhouse is phasing out the buy-one, get-three-free discount strategy that Jos. A. Bank has been known for. While that’s helping improve margins, customers aren’t reacting well to the change, sending sales into a free fall. In the meantime, department stores such as J.C. Penney Co. and Kohl’s Corp. are competing for customers, the company said on the conference call.

“We underestimated the impact to the near-term performance as we began to execute the difficult, but necessary, corrective steps,” Ewert said in the statement. “We remain confident that these steps will restore a long-term, sustainable, profit model.”

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