Industry: Energy and Utilities
RETAIL (MEN’S CLOTHING & APPAREL)
April 6, 2011
Henry Fund Research
Jos. A. Bank Clothiers Inc. (JOSB)
Investment Recommendation Current Price
$50.34
Target Price Range
$43-48
Justin Lawrence [email protected]
HOLD
INVESTMENT THESIS (+) Households account for 98% of demand in this
market. We believe as consumer sentiment grows and as unemployment reaches near-normal levels, revenue in this industry will return to growth as a result of higher downstream demand. (+) Suits and formal wear account for 45% of all
Source: www.finance.yahoo.com
Key Stock Statistics 52-Week Price Range
$35.01-52.51
Market Capitalization (B)
$1.42
Shares Outstanding (M)
27.62
Institutional Ownership
107.3%
60-Month Beta
1.33
Dividend Yield
NA
Price/Earnings (ttm)
16.74
Price/Book
2.93
Price/Sales
1.65
ROA (ttm)
14.65%
ROE(ttm)
19.59%
Projected 5-Year Growth
12.0%
EPS ($) Year EPS
2008 1.85
2009 2.14
2010 2.59
2011E 2.89
2012E 3.23
2013E 3.62
All earnings represent earnings from operations and have been filtered from net nonrecurring gains.
Valuation Models Discounted Cash Flow
$42 - 45
Economic Profit
$42 - 45
Relative P/E
$45 - 50
products sold in this industry. Though purchases of this type of product can be dependent on consumer sentiment, suits and formal wear has been a staple within the U.S. workplace and we expect this trend to continue. (+) JOSB operates in a mature industry with low
risk of technological advances or product obsolescence. (+) JOSB has a very impressive balance sheet with
no long-term debt and a high amount of cash per share. The company also has consistently earned higher profit margins than its competitors as well as a 20% ROE. (-) Cotton prices have risen steadily over the last
12 months to a 140-year high. Higher input costs will lead to higher prices and it is unknown how this will affect sales. (-) JOSB share price is currently near a 52-week
high and have settled near our target price range. Though we feel our model was constructed conservatively and that the stock price could potentially climb higher, we believe the downside risk may outweigh the upside potential at this price.
Important disclosures appear on the last page of this report.
THE UNIVERSITY OF IOWA
Henry Fund Research
Henry B. Tippie School of Management
EXECUTIVE SUMMARY
INDUSTRY TRENDS
Men’s retail clothing and apparel companies experienced the full force of the recent recession. Abnormally high levels of unemployment and reduced consumer sentiment have brought a substantial decrease in revenue to this industry.
We expect input prices to increase in 2011 as demand from emerging markets increases the cost of raw materials. Last month the price of cotton reached its 140-year high, up 22% from 2010. This is in part due to flooding in production areas in Pakistan, but mainly due to skyrocketing demand from China and India.
However, since 2009 these macro factors have begun to improve and have resulted in higher profit and earnings. We expect this trend to continue in the near-term.
JOSB’s typical consumer is a white-collar business professional with over $100,000 of household income. This type of consumer is less price-sensitive and is therefore more willing to accept price increases due to rising input costs. JOSB is also potentially able to absorb a greater portion of the rising input costs internally, due to its ability to yield higher profit margins than its competitors.
Jos. A. Bank Clothiers, Inc. (JOSB) is positioned very favorably within this industry and is expected to outperform its peers for a number of reasons. However, due to the stock’s recent run-up in price, we feel it is fairly valued by the market and we therefore recommend a HOLD at this time.
Though the company appears to be positioned well in spite of rising cotton prices, a continued increase in input costs could be a potential headwind for JOSB and a cause for concern for investors.
COMPANY DESCRIPTION JOSB is a multi-channel specialty designer, retailer and direct marketer of men’s formal wear, casual wear, and accessories. The company also offers alteration services such as hemming and tailoring.
MARKETS AND COMPETITION Overall men’s specialty stores have seen positive revenue growth since 2009. The economic issues affecting revenue are similar throughout the retail industry. However, men’s specialty stores have found success catering to niche markets as well as high-end customers, less affected by the recession. We expect this trend to continue throughout 2011 and into 2012.
JOSB sells a vast majority of its product under the Jos. A. Bank private label. The company’s strategy includes offering product at “Three Levels of Luxury” in order to cater to mid to high-end consumers. The company purchases a majority of its product as finished goods from suppliers that build-to-suit using Jos. A. Bank designs and specifications. JOSB operates 505 stores in the United States, all under the Jos. A. Bank name. The following chart provides information on the company’s performance over the last several years.
Source: IBIS World
2
THE UNIVERSITY OF IOWA
Henry Fund Research
Henry B. Tippie School of Management Table A
Table A (right) summarizes industry fundamental ratios for JOSB, The Men’s Wearhouse (MW), and PhillipsVan Heusen (PVH). Some of the most important ratios to take note of within this industry are gross margin, receivables turnover, inventory turnover.
Ratios - Annual
JOSB
MW
PVH
31-Jan-11
31-Jan-11
31-Jan-11
13.9x
20.6x
73.0x
Price/Sales
1.4x
0.7x
0.8x
Price/Book Value
2.4x
1.4x
1.7x
Price/Cash Flow
11.2x
8.2x
11.2x
Enterprise Value/EBIT
6.4x
11.2x
12.4x
Enterprise Value/EBITDA
5.4x
5.7x
9.5x
Enterprise Value/Sales
1.1x
0.6x
1.3x
Total Debt/Enterprise Value
0.0x
0.0x
0.4x
Total Debt/EBITDA
0.0x
0.0x
3.8x
EPS (basic)
3.11
1.27
0.82
Gross Margin
62.6%
42.7%
52.4%
Operating Margin
16.6%
5.4%
10.4%
Pretax Margin
16.6%
4.8%
1.7%
Net Margin
10.0%
3.2%
1.2%
Return on Assets
14.1%
5.3%
1.2%
Return on Equity
19.6%
7.2%
3.0%
Return on Total Capital
19.6%
7.0%
1.7%
Return on Invested Capital
19.6%
7.0%
1.7%
Basic DuPont ROE (3 Step)
19.6%
7.2%
3.0%
Extended DuPont ROE (5 Step)
19.6%
7.2%
3.0%
0.2
0.1
0.2
90.0x
45.9x
14.4x
4.1
7.9
25.3
1.4x
2.6x
4.6x
Days of Inventory on Hand
257.1
139.1
79.0
Payables Turnover
13.5x
12.2x
12.4x
Days of Payables Outstanding
27.0
30.0
29.4
Cash Conversion Cycle (Days)
234.1
117.0
74.9
Total Asset Turnover
1.3x
1.6x
0.7x
Working Capital Turnover
2.1x
4.2x
5.1x
Current Ratio
4.27
2.87
1.99
Quick Ratio
2.40
1.04
1.23
Cash Ratio
2.17
0.51
0.55
Valuation Price/Earnings
The gross margin ratio is a key indicator of how a company in this industry is managing its material and labor costs. Companies with wiggle room in this area will have a substantial advantage in the coming months. Companies within this industry will need to manage inventory very closely in 2011 as volatility in sales will remain. Companies with large amounts of capital tied up in inventory will be at a competitive disadvantage as interest rates are expected to increase throughout the year. However, because of low change in consumer tastes within this industry, there is little risk that inventory will become obsolete. Also, having plenty of inventories available can make planning ahead much easier, possibly reducing shipping and other costs (avoiding air-freight, etc.).
Profitability
Receivables turnover will also be an important factor to manage in the near term. Because companies collect most payments at point of sale, this is a key indicator of what portion of sales is being made directly to customers. JOSB leads its peers in many of the profitability, efficiency, and liquidity categories. The company has a large amount of cash on its balance sheet ($9.80/share) which provides flexibility to management and brings peace of mind to shareholders. JOSB’s current ratio is nearly twice has high as its competitors. The company also has low debt on its balance sheet as a majority of its debt comes in the form of operating leases. JOSB has been able to take advantage of the weak commercial real estate market and has seen a reduction in lease expense in recent years. This reduction should help to offset increases in input costs.
Efficiency Revenue/Employee Receivables Turnover Days of Sales Outstanding Inventory Turnover
Liquidity
Finally, and perhaps most importantly, JOSB has posted extremely high ROE and ROA numbers in comparison to its peers. This is a sign that management is doing more with less and rewarding shareholders appropriately.
Source: FactSet
3
THE UNIVERSITY OF IOWA
Henry Fund Research
Henry B. Tippie School of Management
ECONOMIC OUTLOOK
Unemployment Rate: The unemployment rate is an important driver within this industry in that it directly influences both disposable income and consumer sentiment. This industry is especially affected by job loss. When consumers are unemployed they are not in need of formal business attire and discretionary spending is cut out of the budget. The unemployment rate has been hovering around 10% since 2009. However, the first part of 2011 has brought a slight decrease in the unemployment rate and we expect it to continue in 2011, especially as it pertains to whitecollar employment.
The most important economic factors affecting revenue for JOSB are consumer sentiment, per capita disposable income, and the unemployment rate. Consumer Sentiment Index: The consumer sentiment index measures the level of consumer confidence, which affects household expenditures. Since 2006 consumer discretionary spending has decreased significantly in the U.S. due to the recent recession. However, since 2008 consumers’ spending power has increased. We expect this trend to continue throughout 2011.
Source: IBIS World
Overall we feel the economic outlook is very positive for JOSB and will be a strong driver for increased demand and revenue in this space.
Source: IBIS World
Per Capita Disposable Income: As per capita disposable income increases within the economy, demand for men’s clothing will increase. Customers within this industry are very sensitive to changes in their level of disposable income. This number has increased since the recession in 2008 and we expect a further increase in 2011.
CATALYSTS FOR GROWTH Casual wear: Recently there has been a slight shift in trend toward casual wear as companies in the U.S. begin to allow this type of dress in the workplace. We expect this product segment to increase in prevalence over time as employers relax dress codes. JOSB is positioned very well to accommodate this shift in demand. The company offers many different types of casual clothing options including sweaters, polo tshirts, and casual slacks. E-Commerce: In 2009 JOSB revamped its website and internet sales have become a growing source of revenue for the company. Management has announced plans to enter international markets via ecommerce in the near-term. The company plans to advertise internationally, directing customers to purchase products online with free shipping on orders
Source: IBIS World
4
THE UNIVERSITY OF IOWA
Henry Fund Research
Henry B. Tippie School of Management
of qualifying amounts. This presents a remarkable opportunity for JOSB to expand its brand into a new customer base with only marginal investment.
spending during the recession. Customers have grown used to buying this type of clothing on-sale. Price increases, due to increasing raw materials costs, may be met with resistance.
Factory Outlet Stores: JOSB has recently made statements that it plans to open factory outlet stores within a 5-year horizon. Though few other details are known about this move, it’s clear there are many positive reasons for the company to do so. Outlet stores would allow JOSB to better control profit margins on overstock and seasonal items and could provide an alternative to offering aggressive sales within its consumer-direct stores.
JOSB share prices are at a 52-week high and near
our price target. It is also trading at 15.6x next year’s earnings, a level consistent with other competitors in the industry.
VALUATION The key assumptions used in the valuation model are the following:
INVESTMENT POSITIVES JOSB has no long-term debt on its balance sheet
1) Projected Number of Stores Opened: Our revenue forecast was calculated as a function of the number of stores open, and the amount of revenue per store the company can expect to yield going forward. Management has provided guidance revealing a plan to reach 600 stores within three to four years. The model was built conservatively, projecting that the company will reach 600 stores between 2013 and 2014.
(other than operating leases) and funds store growth using operating profit. JOSB consistently posts gross profit margins and
operating profit margins far higher than any other competitor within the industry. JOSB currently holds $9.80 per share in cash and
cash equivalents on its balance sheet. The company is positioned well to take advantage of 2) Revenue per Store: Revenue per store has been a business opportunities that arise. It is also possible fairly constant amount over the last 5 years with a that JOSB could offer a dividend or announce a slight trend upward. A 5-year historical average share repurchase in the near-term. was used to project revenue per store through 2015 and into steady state. A constant number Return on equity has been near 20% year over year was used instead of a growing number to maintain and is expected to remain high. a conservative approach. Further information regarding this decision is detailed in the next paragraph.
INVESTMENT NEGATIVES
3) Improved Economic Environment: We believe JOSB will experience an improved economic environment in the near term. Consumer sentiment, the U.S. unemployment rate, and per capita disposable income are expected to improve steadily, allowing for an increase in revenue for JOSB. We believe the company will reach the 600 store mark between 2013 and 2014 mainly as a result of the positive effect of the improving economic environment. As a result, we have held revenue per store constant at a historical average to provide a conservative estimate of revenue. We feel this is the most probable outcome.
Performance in this industry is highly dependent
on consumers’ discretionary income and would suffer substantially in the event of a double-dip recession or a sudden increase in unemployment. Suits and formal wear have historically accounted
for more than 75% of sales. A trend toward more casual clothing in the workplace could negatively affect margins at JOSB. Customers at every level are becoming more price
sensitive in response to increased promotions and marketing strategies implemented to stimulate
5
THE UNIVERSITY OF IOWA
Henry Fund Research
Henry B. Tippie School of Management
REFERENCES
4) Depreciation: Depreciation is projected using a historical 5-year average. The company has maintained a depreciation rate near 8% (as compared to gross PPE) and we feel this is an accurate estimate.
1. IBIS World Industry Report: US Men’s Clothing Stores in the US 2. www.wto.org 3. IBIS World Industry Report: Department Stores in the US
5) Property, Plant, & Equipment (PPE): PPE is calculated as a function of the number of stores open, and growth of PPE per store of 8% per year until steady state. The rationale behind this assumption is that as the company adds more and more stores, the average cost of maintenance, upkeep, and remodeling will increase over time due to inflation and the aging of existing stores.
4. www.ibisworld.com 5. United States www.dol.gov
Department
of
Labor,
6. The Men’s Wearhouse Annual Report 7. Jos. A. Bank Annual Report 8. Phillips-Van Heusen Annual Report
6) Operating Leases: The present value of operating lease expense was forecast as a function of the number of stores open and an average present value of operating leases per store. This amount was estimated using a 5-year historical average and we feel this is a conservative estimate going forward, considering the average present value lease liability has fallen slightly from year to year since 2006.
9. Casual Male Retail Group Annual Report 10. www.finance.yahoo.com 11. Industry Confronting More Austerity. By: Monget, Karyn, WWD: Women's Wear Daily, 01495380, 11/29/2010, Vol. 200, Issue 112 12. www.investopedia.com 13. “Retail Rebound Clouded by Rising Costs”, Elizabeth Holmes, The Wall Street Journal, 2/4/2011
7) Operating Profit Margin: JOSB has been able to steadily increase its operating profit margin from 13.30% in 2006 to 15.45% in 2010. We project this trend to continue as the company grows and expenses such as SG&A become a smaller percentage of sales.
14. “.Gap, Wal-Mart Clothing Costs Rise on ‘Terrifying’ Cotton Prices”, Michael Wei, Bloomberg.com, 11/15/2010 15. “Key Economic Measures of the United States Economy”, Unknown, MoneyRates.com, 2/4/2011
We place a HOLD recommendation on JOSB with a target price range of $43-48. The stock is currently trading at its 52-week high, a P/E consistent with that of the industry. Though we believe JOSB has strong earnings potential, that improving economic conditions will allow for growth, and that the company is positioned well within the industry, we feel these factors are currently priced into the stock and that better investment alternatives exist elsewhere at this time. However, if the share price would fall near $40 without substantial change to the economic environment, reconsideration and further analysis would be advised.
16. “Attention, Stockpickers”, Barron’s (TWJ), 1/15/2011
Lauren
Rublin,
17. FactSet
IMPORTANT DISCLAIMER This report was created by a student(s) enrolled in the Applied Securities Management (Henry Fund) program at the University of Iowa’s Tippie School of Management. The intent of these reports is to provide potential employers and other interested parties an example of the analytical skills, investment knowledge, and communication abilities of Henry Fund students. Henry Fund analysts are not registered investment advisors, brokers or officially licensed financial professionals. The investment opinion contained in this report does not represent an offer or solicitation to buy or sell any of the aforementioned securities. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Henry Fund may hold a financial interest in the companies mentioned in this report.
6
THE UNIVERSITY OF IOWA
Henry Fund Research
Henry B. Tippie School of Management
7
Jos. A. Bank Clothiers Inc. Income Statement 2008 Final
2009 Final
2010 Final
2011E Forecast
2012E Forecast
2013E Forecast
2014E Forecast
2015CV Forecast
604.0 225.4
695.9 265.0
770.3 298.2
785.1 298.3
843.4 320.5
910.2 345.9
985.3 374.4
1,018.7 387.1
206.9
244.3
275.8
275.6
296.0
319.5
345.8
357.6
18.5
20.6
22.4
22.8
26.5
31.0
34.6
38.6
Gross Income
378.6
431.0
472.1
486.8
520.8
559.7
604.8
622.5
SG&A Expense
416.0
Sales/Revenue Cost of Goods Sold (COGS) incl. D&A COGS excluding D&A Depreciation & Amortization Expense
295.9
334.3
353.1
352.1
369.7
389.9
412.3
Other Operating Expense
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
EBIT (Operating Income)
82.8
96.7
119.0
134.7
151.1
169.7
192.6
206.4
Nonoperating Income (Expense) - Net
1.9
0.9
0.4
0.8
0.8
0.9
1.0
1.0
Interest Expense
0.4
0.4
0.4
1.6
1.7
1.8
2.0
2.0
Unusual Expense (Income) - Net
0.0
1.2
1.6
0.8
0.8
0.9
1.0
1.0
Pretax Income
84.3
96.0
117.4
131.6
147.7
166.1
188.6
202.4
Income Taxes
34.2
37.6
46.2
51.8
58.2
65.4
74.3
79.7
Consolidated Net Income
50.2
58.4
71.2
79.7
89.5
100.7
114.3
122.6
Net Income
50.2
58.4
71.2
79.7
89.5
100.7
114.3
122.6
Net Income available to Common
50.2
58.4
71.2
79.7
89.5
100.7
114.3
122.6
EPS (basic) Total Common Shares Outstanding Dividends/Share Operating Profit Margin
1.847
2.140
2.593
2.887
3.230
3.621
4.099
4.384
27.269
27.436
27.527
27.617
27.707
27.797
27.887
27.977
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
13.70%
13.89%
15.45%
17.16%
17.91%
18.65%
19.54%
20.27%
Jos. A. Bank Clothiers Inc. Balance Sheet 2008 Final
2009 Final
2010 Final
2011E Forecast
2012E Forecast
2013E Forecast
2014E Forecast
2015CV Forecast
82.08
122.88
191.59
202.75
266.63
339.74
432.98
548.43
Cash Only
0.00
0.00
21.85
26.92
84.49
151.06
237.53
345.96
Total Short Term Investments
0.00
0.00
169.74
175.83
182.14
188.68
195.45
202.47
13.01
11.61
6.76
6.44
6.92
7.46
8.08
8.35
206.83
209.24
218.32
336.11
361.04
389.64
421.81
436.11
11.44
13.58
15.14
21.59
23.19
25.03
27.10
28.01
313.36 357.30 431.81
566.89
657.78
761.87
889.96
1020.90
Assets Cash & ST Investments
Total Accounts Receivable Inventories Other Current Assets (Pre-paid expenses) Total Current Assets Net Property, Plant & Equipment
126.24
133.59
124.14
121.79
142.06
166.80
177.09
188.11
Property, Plant & Equipment - Gross
226.56
251.85
262.39
282.80
329.62
385.38
430.32
479.98
Accumulated Depreciation
100.33
118.26
138.25
161.01
187.55
218.58
253.22
291.87
0.51
0.48
0.42
0.86
0.93
1.00
1.08
1.12
440.10 491.37 556.36
689.54
800.77
929.67
1068.14
1210.13
Other Assets Total Assets Liabilities & Shareholders' Equity
7.34
8.27
0.00
0.00
0.00
0.00
0.00
0.00
Accounts Payable
47.38
29.77
18.23
32.63
33.89
38.21
38.65
40.33
Income Tax Payable
20.81
17.72
19.92
30.01
33.68
37.88
43.01
46.15
Other Current Liabilities
50.69
55.41
70.40
90.76
97.49
105.21
113.90
117.76
126.22 111.17 108.55
153.40
165.06
181.30
195.57
204.24
ST Debt & Curr. Portion LT Debt
Total Current Liabilities Long-Term Debt
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Deferred Taxes
1.21
2.61
1.61
2.14
2.03
1.92
2.06
1.95
50.20
55.78
52.90
61.44
71.61
83.73
93.49
104.28
Total Liabilities
178.93 169.55 163.05
216.98
238.71
266.95
291.12
310.48
Common Equity
261.17 321.81 393.31 80.79 82.95 83.25
472.56
562.06
662.72
777.02
899.66
83.00
83.00
83.00
83.00
83.00
Other Liabilities (Deferred Rent)
Additional Paid-In Capital/Capital Surplus
180.26
238.67
309.82
389.56
479.06
579.72
694.02
816.66
-0.07
0.01
0.24
0.00
0.00
0.00
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
Total Shareholders' Equity
261.17 321.81 393.31
472.56
562.06
662.72
777.02
899.66
Total Equity
261.17 321.81 393.31
472.56
562.06
662.72
777.02
899.66
Liabilities & Shareholders' Equity
440.10 491.37 556.36
689.54
800.77
929.67
1068.14
1210.13
Retained Earnings Other Appropriated Reserves Treasury Stock
Jos. A. Bank Clothiers Inc. Statement of Cash Flows 2008 Final
2009 Final
2010 Final
2011E Forecast
Net Income before Extraordinaries
50.17
58.41
71.16
79.74
Depreciation, Depletion & Amortization
18.48
20.61
22.38
22.77
Deferred Taxes & Investment Tax Credit
(3.15)
1.31
(2.54)
0.54
0.63
1.52
1.71
1.32
81.85 (8.31)
92.71 (7.97)
104.37
Changes in Working Capital
66.12 (2.41)
Net Operating Cash Flow
63.71
73.54
84.75
30.21
Operating Activities
Other Funds Funds from Operations
(74.16)
Investing Activities 27.70
35.11
16.33
20.42
Sale of Fixed Assets & Businesses
0.30
0.20
0.00
0.00
Purchase/Sale of Investments
0.00
0.00
(169.74)
0.00
Other Funds
0.00
0.00
0.00
0.00
(27.40)
(34.91)
(186.07)
(20.42)
Change in Capital Stock
1.87
1.54
0.23
0.00
Repurchase of Common & Preferred Stk.
0.00
0.00
0.00
0.00
Sale of Common & Preferred Stock
1.87
1.54
0.23
0.00
Issuance/Reduction of Debt, Net
0.00
0.00
0.00
0.00
Change in Current Debt
0.00
0.00
0.00
0.00
Change in Long-Term Debt
0.00
0.00
0.00
0.00
Other Funds
0.82
0.63
0.07
0.00
Capital Expenditures
Net Investing Cash Flow Financing Activities
Net Financing Cash Flow
2.69
2.16
0.30
0.00
Miscellaneous Funds
0.00
0.00
(0.00)
0.00
Net Change in Cash
39.00
40.79
(101.02)
9.79
Jos. A. Bank Clothiers Inc. Statement of Cash Flows 2011E Forecast
2012E Forecast
2013E Forecast
2014E Forecast
2015CV Forecast
Net Income before Extraordinaries
79.74
89.50
100.66
114.30
122.64
Depreciation, Depletion & Amortization
22.77
26.54
31.03
34.64
38.64
Deferred Taxes & Investment Tax Credit
0.54
(0.11)
(0.11)
0.14
(0.11)
Operating Activities
Funds from Operations Changes in Working Capital
103.04
115.93
131.57
149.09
161.17
Receivables
(79.52) 0.32
(15.40) (0.48)
(14.82) (0.55)
(20.67) (0.62)
(6.85) (0.27)
Inventories
(117.79)
(24.92)
(28.60)
(32.17)
(14.30)
Other Current Liabilities
20.36
6.73
7.72
8.69
3.86
Other Assets
(0.44)
(0.06)
(0.07)
(0.08)
(0.04)
Accounts Payable
14.41
1.26
4.31
0.45
1.68
Income Tax Payable
10.08
3.67
4.20
5.13
3.14
Pre-paid Expenses
(6.45)
(1.60)
(1.84)
(2.07)
(0.92)
Net Operating Cash Flow
23.52
100.53
116.75
128.42
154.32
Investing Activities (20.42)
(46.82)
(55.76)
(44.94)
(49.66)
(6.09)
(6.31)
(6.54)
(6.77)
(7.02)
8.54
10.17
12.12
9.76
10.79
(17.97)
(42.96)
(50.19)
(41.95)
(45.89)
Additional Paid-in Capital
(0.25)
0.00
0.00
0.00
0.00
Other Appropriated Reserve
(0.24)
0.00
0.00
0.00
0.00
Net Financing Cash Flow
(0.49)
Capital Expenditures Short term Investments Other Liabilities (Deferred Rent) Net Investing Cash Flow Financing Activities
0.00
0.00
0.00
0.00
Miscellaneous Funds
0.00
0.00
0.00
0.00
0.00
Net Change in Cash
5.07
57.57
66.57
86.47
108.43
Jos. A. Bank Clothiers Inc. JOSB 480838101 2478973 NASDAQ
Common stock
Income Statement (Industrial)
Sales/Revenue
2008 Final
2009 Final
2010 Final
2011E Forecast
2012E Forecast
2013E Forecast
2014E Forecast
2015CV Forecast
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Cost of Goods Sold (COGS) incl. D&A
37.3%
38.1%
38.7%
38.0%
38.0%
38.0%
38.0%
38.0%
COGS excluding D&A
34.3%
35.1%
35.8%
35.1%
35.1%
35.1%
35.1%
35.1%
3.1%
3.0%
2.9%
2.9%
3.1%
3.4%
3.5%
3.8%
Gross Income
62.7%
61.9%
61.3%
62.0%
61.8%
61.5%
61.4%
61.1%
SG&A Expense
49.0%
48.0%
45.8%
44.8%
43.8%
42.8%
41.8%
40.8%
0.0%
0.0%
0.0%
0.0%
Depreciation & Amortization Expense
Other Operating Expense
0.0%
0.0%
0.0%
0.0%
EBIT (Operating Income)
13.7%
13.9%
15.4%
17.2%
17.9%
18.7%
19.5%
20.3%
Nonoperating Income (Expense) - Net
0.3%
0.1%
0.0%
0.1%
0.1%
0.1%
0.1%
0.1%
Interest Expense
0.1%
0.1%
0.1%
0.2%
0.2%
0.2%
0.2%
0.2%
Unusual Expense (Income) - Net
0.0%
0.2%
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
Fixed Assets Impairment
0.0%
0.2%
0.2%
0.0%
0.0%
0.0%
0.0%
0.0%
Other Unusual Expense
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
14.0%
13.8%
15.2%
16.8%
17.5%
18.3%
19.1%
19.9%
Income Taxes
5.7%
5.4%
6.0%
6.6%
6.9%
7.2%
7.5%
7.8%
Consolidated Net Income
8.3%
8.4%
9.2%
10.2%
10.6%
11.1%
11.6%
12.0%
Net Income
8.3%
8.4%
9.2%
10.2%
10.6%
11.1%
11.6%
12.0%
Net Income available to Common
8.3%
8.4%
9.2%
10.2%
10.6%
11.1%
11.6%
12.0%
Pretax Income
Jos. A. Bank Clothiers Inc. Balance Sheet 2008 Final
2009 Final
2010 Final
2011E Forecast
2012E Forecast
2013E Forecast
2014E Forecast
2015CV Forecast
17.67%
26.45%
41.23%
25.82%
31.62%
37.33%
43.94%
53.84%
Cash Only
0.00%
0.00%
4.70%
3.43%
10.02%
16.60%
24.11%
33.96%
Total Short Term Investments
0.00%
0.00%
36.53%
22.39%
21.60%
20.73%
19.84%
19.88%
Total Accounts Receivable
2.80%
2.50%
1.45%
0.82%
0.82%
0.82%
0.82%
0.82%
44.51%
45.03%
46.99%
42.81%
42.81%
42.81%
42.81%
42.81%
Other Current Assets (pre-paid expenses)
2.46%
2.92%
3.26%
2.75%
2.75%
2.75%
2.75%
2.75%
Prepaid Expenses
0.00%
0.00%
3.26%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Assets Cash & ST Investments
Inventories
2.46%
2.92%
0.00%
0.00%
0.00%
0.00%
67.44%
76.90%
92.93%
72.20%
78.00%
83.71%
Net Property, Plant & Equipment
27.17%
28.75%
26.72%
15.51%
16.85%
18.33%
17.97%
18.47%
Property, Plant & Equipment - Gross
48.76%
54.20%
56.47%
36.02%
39.08%
42.34%
43.67%
47.12%
Buildings
2.57%
3.14%
3.17%
0.00%
0.00%
0.00%
0.00%
0.00%
Land & Improvements
0.08%
0.39%
0.39%
0.00%
0.00%
0.00%
0.00%
0.00%
Machinery & Equipment
8.01%
8.93%
9.53%
0.00%
0.00%
0.00%
0.00%
0.00%
Other Property, Plant & Equipment
38.11%
41.74%
43.38%
0.00%
0.00%
0.00%
0.00%
0.00%
Accumulated Depreciation
21.59%
25.45%
29.75%
20.51%
22.24%
24.02%
25.70%
28.65%
0.11%
0.10%
0.09%
0.11%
0.11%
0.11%
0.11%
0.11%
94.72% 105.75% 119.74%
87.83%
94.95%
102.14%
108.41%
118.79%
Miscellaneous Current Assets Total Current Assets
Other Assets Total Assets
90.32% 100.22%
Liabilities & Shareholders' Equity
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
ST Debt & Curr. Portion LT Debt
1.58%
1.78%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
10.20%
6.41%
3.92%
4.16%
4.02%
4.20%
3.92%
3.96%
Accounts Payable
4.48%
3.81%
4.29%
3.82%
3.99%
4.16%
4.37%
4.53%
Other Current Liabilities
10.91%
11.93%
15.15%
11.56%
11.56%
11.56%
11.56%
11.56%
Total Current Liabilities
27.17%
23.93%
23.36%
19.54%
19.57%
19.92%
19.85%
20.05%
Long-Term Debt
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Deferred Taxes
0.26%
0.56%
0.35%
0.27%
0.24%
0.21%
0.21%
0.19%
Deferred Taxes - Credit
0.26%
0.56%
0.35%
0.00%
0.00%
0.00%
0.00%
0.00%
Income Tax Payable
10.80%
12.00%
11.39%
7.83%
8.49%
9.20%
9.49%
10.24%
Other Liabilities (excl. Deferred Income)
0.28%
0.22%
0.23%
0.00%
0.00%
0.00%
0.00%
0.00%
Deferred Income
0.00%
11.78%
11.16%
0.00%
0.00%
0.00%
0.00%
0.00%
Total Liabilities
38.51%
36.49%
35.09%
27.64%
28.30%
29.33%
29.55%
30.48%
Common Equity
56.21%
69.26%
84.65%
60.19%
66.65%
72.81%
78.86%
88.31%
Additional Paid-In Capital/Capital Surplus
17.39%
17.85%
17.92%
10.57%
9.84%
9.12%
8.42%
8.15%
Retained Earnings
38.80%
51.37%
66.68%
49.62%
56.80%
63.70%
70.44%
80.17%
Other Appropriated Reserves
-0.01%
0.00%
0.05%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Total Shareholders' Equity
56.21%
69.26%
84.65%
60.19%
66.65%
72.81%
78.86%
88.31%
Total Equity
56.21%
69.26%
84.65%
60.19%
66.65%
72.81%
78.86%
88.31%
Liabilities & Shareholders' Equity
94.72% 105.75% 119.74%
87.83%
94.95% 102.14% 108.41% 118.79%
Other Liabilities
Treasury Stock
Jos. A. Bank Clothiers Inc. Statement of Cash Flows 2008 Final
2009 Final
2010 Final
2011E Forecast
Net Income before Extraordinaries
8.3%
8.4%
9.2%
10.2%
Depreciation, Depletion & Amortization
3.1%
3.0%
2.9%
2.9%
Deferred Taxes & Investment Tax Credit
-0.5%
0.2%
-0.3%
0.1%
0.1%
0.2%
0.2%
0.2%
10.9%
11.8%
12.0%
13.3%
-0.4%
-1.2%
-1.0%
-9.4%
Receivables
0.0%
-0.2%
0.2%
0.0%
Inventories
-3.9%
-0.3%
-1.2%
-15.0%
Accounts Payable
0.9%
-2.5%
-1.5%
1.8%
Other Accruals
1.3%
1.2%
1.6%
0.0%
Other Assets/Liabilities
1.3%
0.8%
-0.1%
0.0%
10.5%
10.6%
11.0%
3.8%
Capital Expenditures
4.6%
5.0%
2.1%
2.6%
Sale of Fixed Assets & Businesses
0.0%
0.0%
0.0%
0.0%
Purchase/Sale of Investments
0.0%
0.0%
-22.0%
0.0%
Purchase of Investments
0.0%
0.0%
22.0%
0.0%
Other Funds
0.0%
0.0%
0.0%
0.0%
-4.5%
-5.0%
-24.2%
-2.6%
Change in Capital Stock
0.3%
0.2%
0.0%
0.0%
Repurchase of Common & Preferred Stk.
0.0%
0.0%
0.0%
0.0%
Sale of Common & Preferred Stock
0.3%
0.2%
0.0%
0.0%
Proceeds from Stock Options
0.0%
0.0%
0.0%
0.0%
Other Proceeds from Sale of Stock
0.3%
0.2%
0.0%
0.0%
Issuance/Reduction of Debt, Net
0.0%
0.0%
0.0%
0.0%
Change in Current Debt
0.0%
0.0%
0.0%
0.0%
Change in Long-Term Debt
0.0%
0.0%
0.0%
0.0%
Issuance of Long-Term Debt
0.0%
0.0%
0.0%
0.0%
Reduction in Long-Term Debt
0.0%
0.0%
0.0%
0.0%
Other Funds
0.1%
0.1%
0.0%
0.0%
Net Financing Cash Flow
0.4%
0.3%
0.0%
0.0%
Operating Activities
Other Funds Funds from Operations Changes in Working Capital
Net Operating Cash Flow Investing Activities
Net Investing Cash Flow Financing Activities
2008
2009
2010
2011E
2012E
2013E
2014E 2015CV
Normal Cash (min of 2% of sales or bal)
12.08
13.92
15.41
15.70
16.87
18.20
19.71
20.37
Accounts Receivable
13.01
11.61
6.76
6.44
6.92
7.46
8.08
8.35
206.83
209.24
218.32
336.11
361.04
389.64
421.81
436.11
11.44
13.58
15.14
21.59
23.19
25.03
27.10
28.01
243.35 248.34 255.62 379.85 408.01 440.33 476.69
492.85
Operating Current Assets:
Inventories Prepaid Expenses
Operating Current Liabilities: Accounts Payable
47.38
29.77
18.23
32.63
33.89
38.21
38.65
40.33
Income Tax Payable
20.81
17.72
19.92
30.01
33.68
37.88
43.01
46.15
Other Current Liablities
50.69
55.41
70.40
90.76
97.49
105.21
113.90
117.76
118.88 102.91 108.55 153.40 165.06 181.30 195.57
204.24
Net PPE: Property, Plant & Equipment - Gross
226.56
251.85
262.39
282.80
329.62
385.38
430.32
479.98
Accumulated Depreciation
100.33
118.26
138.25
161.01
187.55
218.58
253.22
291.87
126.24 133.59 124.14 121.79 142.06 166.80 177.09
188.11
Other Long-term Operating Assets: PV of Operating Leases Other Assets
275.80
276.20
277.80
309.95
334.50
362.12
374.40
386.67
0.51
0.48
0.42
0.86
0.93
1.00
1.08
1.12
276.31
276.68
278.22
310.82
335.43
363.12
375.48
387.79
50.20
55.78
52.90
61.44
71.61
83.73
93.49
104.28
476.82 499.93 496.54 597.61 648.83 705.23 740.21
760.23
Other Long-term Operating Liabilities: Other Liabilities (deferred rent) Invested Capital
EBITA (Operating Income)
2008
2009
2010
2011E
2012E
2013E
2014E
2015CV
82.75
96.69
119.00
134.72
151.06
169.74
192.56
206.45
34.17
37.56
46.23
51.84
58.19
65.44
74.31
79.73
Adjusted Taxes: Income Taxes Plus Tax Shield on Int Exp
0.14
0.15
0.16
0.62
0.66
0.72
0.78
0.80
Minus Tax on Interest (or Invest) Income
0
0
0
0
0
0
0
0
Plus Tax Shield on Amortized Goodwill
0
0
0
0
0
0
0
0
Minus Tax on Non-Operating Income
0.76
0.34
0.15
0.31
0.33
0.36
0.39
0.40
Plus Tax Shield on Unusual Expense
0.00
0.47
0.63
0.31
0.33
0.36
0.39
0.40
33.54
37.84
46.87
52.46
58.85
66.16
75.09
80.54
1.21
2.61
1.61
2.14
2.03
1.92
2.06
1.95
Total Change in Deferred Taxes: Deferred Tax Liability Deferred Tax Asset
NOPLAT
0
0
0
0
0
0
0
0
-1.39
1.40
-1.00
0.54
-0.11
-0.11
0.14
-0.11
47.82
60.24
71.14
82.79
92.10
103.47
117.61
125.80
ROIC = NOPLAT / Beg Inv Capital NOPLAT Beg. Invested Capital
2008
2009
2010
2011E
2012E
2013E
2014E
2015CV
47.82
60.24
71.14
82.79
92.10
103.47
117.61
125.80
430.80
476.82
499.93
496.54
597.61
648.83
705.23
740.21
11.10%
12.63%
14.23%
16.67%
15.41%
15.95%
16.68%
17.00%
NOPLAT
47.82
60.24
71.14
82.79
92.10
103.47
117.61
125.80
Δ Invested Capital
46.02
23.11
3.39
101.07
51.22
56.40
34.98
20.03
1.81
37.13
74.53
-18.28
40.88
47.07
82.63
105.78
Beginning IC
430.80
476.82
499.93
496.54
597.61
648.83
705.23
740.21
ROIC
11.10%
12.63%
14.23%
16.67%
15.41%
15.95%
16.68%
17.00%
WACC
9.44%
9.44%
9.44%
9.44%
9.44%
9.44%
9.44%
9.44%
(ROIC - WACC)
1.66%
3.19%
4.79%
7.23%
5.97%
6.50%
7.23%
7.55%
7.14
15.21
23.93
35.90
35.66
42.20
51.01
55.90
ROIC
FCF
EP
2008
2009
2010
2011E
2012E
2013E
2014E
2015CV
604.01
695.908
770.316
785.12953
843.35
910.15
985.3
1018.7
422
460
473
505
545
590
610
630
Number of Stores Opened (during period)
48
40
14
36
40
45
20
20
Number of Stores (open at least 12 mos)
374
420
459
469
505
545
590
610
1.62
1.66
1.68
1.67
1.67
1.67
1.67
1.67
10.55%
15.21%
10.69%
1.92%
7.42%
7.92%
8.26%
3.39%
Revenue Number of Stores (end of period)
Rev/Store (same store) Revenue Growth
WACC Pre-Tax Cost of Debt
5.25%
Tax Rate
40%
After-Tax Cost of Debt
3.15%
Total Debt
277.8
D/(D+E) Share Price (as of 2/28/11) Shares Outstanding Market Cap E/(D+E) D+E Beta
0.02% $
46.11 27,620 1,273,558 99.98% 1,273,836 1.33
Risk Free Rate (10-year Treasury)
3.46%
Cost of Equity
9.45%
Expected Market Return
7.96%
Market Risk Premium
4.50%
WACC
9.44%
CV Growth Rate
3.39%
FCF Valuation Time Period
1
2
3
4
Year
2011E
2012E
2013E
2014E
2015 CV
FCF
-18.278
40.875
47.073
82.629
1663.566
Discount Rate PV of FCF PV-Operating
9.44%
9.44%
9.44%
9.44%
9.44%
-16.700
34.125
35.909
57.593
1159.520
2
3
4
1270.446
Excess Cash & Marketable Securities
177.67
Total PV Oper Leases
277.80
PV of Equity
1170.32
Shares Outstanding DCF Valuation
4
27.6 $
42.40
EP Valuation Time Period
1
4
Year
2011E
2012E
2013E
2014E
2015 CV
EP Valuation
35.904
35.663
42.196
51.008
923.360
Discount Rate PV of EP PV - Operating
9.44%
9.44%
9.44%
9.44%
9.44%
32.806
29.774
32.189
35.553
643.590
773.9111292
Excess Cash & Marketable Securities
177.67
PV Oper Lease
277.80
Beg Inv Capital
496.54
Sum of IC and EP
1170.32
Shares Outstanding
27.6
EP Valuation
$
42.40
Partial Year Adjust
$
42.72
Relative P/E Analysis (3/1/2011) EPS 10A
EPS 11E
EPS 12E
P/E 10
P/E 11
P/E 12
MW
Ticker
Men's Wearhouse
Company
Price 25.83
1.11
1.47
1.69
18.2
17.8
15.3
RL
Polo Ralph Lauren
123.59
4.50
5.81
6.54
18.9
21.3
18.9
PVH
Phillips-Van Heusen
58.72
2.83
3.94
4.83
13.9
14.8
12.2
CMRG
Casual Male Retail Group
4.21
0.14
0.33
0.39
20.0
12.7
10.8
17.8
16.7
14.3
Peer Average KSS
Kohl's Corp
53.39
3.65
4.34
4.94
13.9
12.3
10.8
SHLD
Sear's Holdings Corp
82.56
2.07
1.14
1.15
36.4
72.3
72.1
M
Macy's Inc
23.29
2.11
2.31
2.57
11.0
10.1
9.1
DDS
Dillard's Inc
41.70
2.50
3.12
3.43
15.9
13.4
12.2
19.3
27.0
26.1
17.4
15.6
13.9
Peer Average JOSB
Jos A Bank
45.00
2.59
2.89
3.23
Scenario Analysis Key Variables: Top Line
1) Number of stores in a given year (same store) -- Thought to encompass growth and IC assumptions
Top Line
2) Rev per store (same store)
Bottom Line
3) Operating Profit Margin "Best Case" Scenario
(Probability 0.25) 2011E
2012E
2013E
2014E
2015 CV
Number of stores:
500
536
576
621
641
Rev per store:
1.8
1.8
1.8
1.8
1.8
19.00%
19.75%
20.49%
21.38%
22.11%
2011E
2012E
2013E
2014E
2015 CV
469
505
545
590
610
1.67
1.67
1.67
1.67
1.67
17.16%
17.91%
18.65%
19.54%
20.27%
Operating profit margin:
"Most Likely" Scenario
$
52.26
Price:
$
43.38
Price:
$
37.97
(Probability 0.50)
Number of stores: Rev per store: Operating profit margin:
"Worst Case" Scenario
Price:
(Probability 0.25) 2011E
2012E
2013E
2014E
2015 CV
Number of stores:
450
486
526
571
591
Rev per store:
1.6
1.6
1.6
1.6
1.6
15.10%
15.85%
16.59%
17.48%
18.21%
Operating profit margin:
Probability weighted price:
$
44.25
Liquidity Ratios
2008
2009
2010
2011E
2012E
2013E
2014E
2015CV
Current Ratio
2.48
3.21
3.98
3.70
3.98
4.20
4.55
5.00
Quick Ratio
0.75
1.21
1.83
1.36
1.66
1.92
2.26
2.73
Cash Ratio
0.65
1.11
1.77
1.32
1.62
1.87
2.21
2.69
Asset Turnover
4.78
5.21
6.21
6.45
5.94
5.46
5.56
5.42
A/R Turnover
46.7
56.5
83.9
119.0
126.3
126.6
126.8
124.0
Inventory Turnover
2.92
3.33
3.53
2.34
2.34
2.34
2.34
2.34
Debt Ratio
0.41
0.35
0.29
0.31
0.30
0.29
0.27
0.26
Debt-to-Equity Ratio
0.69
0.53
0.41
0.46
0.42
0.40
0.37
0.35
Activity Ratios
Financial Leverage Ratios
Profitability Ratios 62.69%
61.93%
61.29%
62.00%
61.75%
61.49%
61.38%
61.11%
Operating Profit Margin
Gross Profit Margin
13.70%
13.89%
15.45%
17.16%
17.91%
18.65%
19.54%
20.27%
Return on Assets
12.4%
12.5%
13.6%
12.8%
12.0%
11.6%
11.4%
10.8%
Return on Equity
21.4%
20.0%
19.9%
18.4%
17.3%
16.4%
15.9%
14.6%
Liquidity Ratios Current Ratio
Current Assets / Current Liabilities
Quick Ratio
Cash & Cash Equiv + Short Term Inv. + Accounts Receivable / Current Liabilities
Cash Ratio
Cash + Cash Equiv + Invested Funds / Current Liabilities
Activity Ratios Asset Turnover
Rev / PPE
A/R Turnover
Net Sales / Average Accounts Receivable
Inventory Turnover
Revenues / Inventory
Financial Leverage Ratios Debt Ratio
Total Liabilities / Total Assets
Debt-to-Equity Ratio
Total Liabilities / Shareholders Equity
Profitability Ratios Gross Profit Margin
Gross Profit / Revenue (net sales)
Return on Assets
Net Income / Average Total Assets
Return on Equity
Net Income / Average Shareholders Equity
Payout Policy Ratios Payout Ratio
Dividends per Share / Earnings per Share
April 6, 2011
Henry Fund Research
Jos. A. Bank Clothiers Inc. (JOSB)
Investment Recommendation Current Price
$50.34
Target Price Range
$43-48
Justin Lawrence [email protected]
HOLD
INVESTMENT THESIS (+) Households account for 98% of demand in this
market. We believe as consumer sentiment grows and as unemployment reaches near-normal levels, revenue in this industry will return to growth as a result of higher downstream demand. (+) Suits and formal wear account for 45% of all
Source: www.finance.yahoo.com
Key Stock Statistics 52-Week Price Range
$35.01-52.51
Market Capitalization (B)
$1.42
Shares Outstanding (M)
27.62
Institutional Ownership
107.3%
60-Month Beta
1.33
Dividend Yield
NA
Price/Earnings (ttm)
16.74
Price/Book
2.93
Price/Sales
1.65
ROA (ttm)
14.65%
ROE(ttm)
19.59%
Projected 5-Year Growth
12.0%
EPS ($) Year EPS
2008 1.85
2009 2.14
2010 2.59
2011E 2.89
2012E 3.23
2013E 3.62
All earnings represent earnings from operations and have been filtered from net nonrecurring gains.
Valuation Models Discounted Cash Flow
$42 - 45
Economic Profit
$42 - 45
Relative P/E
$45 - 50
products sold in this industry. Though purchases of this type of product can be dependent on consumer sentiment, suits and formal wear has been a staple within the U.S. workplace and we expect this trend to continue. (+) JOSB operates in a mature industry with low
risk of technological advances or product obsolescence. (+) JOSB has a very impressive balance sheet with
no long-term debt and a high amount of cash per share. The company also has consistently earned higher profit margins than its competitors as well as a 20% ROE. (-) Cotton prices have risen steadily over the last
12 months to a 140-year high. Higher input costs will lead to higher prices and it is unknown how this will affect sales. (-) JOSB share price is currently near a 52-week
high and have settled near our target price range. Though we feel our model was constructed conservatively and that the stock price could potentially climb higher, we believe the downside risk may outweigh the upside potential at this price.
Important disclosures appear on the last page of this report.
THE UNIVERSITY OF IOWA
Henry Fund Research
Henry B. Tippie School of Management
EXECUTIVE SUMMARY
INDUSTRY TRENDS
Men’s retail clothing and apparel companies experienced the full force of the recent recession. Abnormally high levels of unemployment and reduced consumer sentiment have brought a substantial decrease in revenue to this industry.
We expect input prices to increase in 2011 as demand from emerging markets increases the cost of raw materials. Last month the price of cotton reached its 140-year high, up 22% from 2010. This is in part due to flooding in production areas in Pakistan, but mainly due to skyrocketing demand from China and India.
However, since 2009 these macro factors have begun to improve and have resulted in higher profit and earnings. We expect this trend to continue in the near-term.
JOSB’s typical consumer is a white-collar business professional with over $100,000 of household income. This type of consumer is less price-sensitive and is therefore more willing to accept price increases due to rising input costs. JOSB is also potentially able to absorb a greater portion of the rising input costs internally, due to its ability to yield higher profit margins than its competitors.
Jos. A. Bank Clothiers, Inc. (JOSB) is positioned very favorably within this industry and is expected to outperform its peers for a number of reasons. However, due to the stock’s recent run-up in price, we feel it is fairly valued by the market and we therefore recommend a HOLD at this time.
Though the company appears to be positioned well in spite of rising cotton prices, a continued increase in input costs could be a potential headwind for JOSB and a cause for concern for investors.
COMPANY DESCRIPTION JOSB is a multi-channel specialty designer, retailer and direct marketer of men’s formal wear, casual wear, and accessories. The company also offers alteration services such as hemming and tailoring.
MARKETS AND COMPETITION Overall men’s specialty stores have seen positive revenue growth since 2009. The economic issues affecting revenue are similar throughout the retail industry. However, men’s specialty stores have found success catering to niche markets as well as high-end customers, less affected by the recession. We expect this trend to continue throughout 2011 and into 2012.
JOSB sells a vast majority of its product under the Jos. A. Bank private label. The company’s strategy includes offering product at “Three Levels of Luxury” in order to cater to mid to high-end consumers. The company purchases a majority of its product as finished goods from suppliers that build-to-suit using Jos. A. Bank designs and specifications. JOSB operates 505 stores in the United States, all under the Jos. A. Bank name. The following chart provides information on the company’s performance over the last several years.
Source: IBIS World
2
THE UNIVERSITY OF IOWA
Henry Fund Research
Henry B. Tippie School of Management Table A
Table A (right) summarizes industry fundamental ratios for JOSB, The Men’s Wearhouse (MW), and PhillipsVan Heusen (PVH). Some of the most important ratios to take note of within this industry are gross margin, receivables turnover, inventory turnover.
Ratios - Annual
JOSB
MW
PVH
31-Jan-11
31-Jan-11
31-Jan-11
13.9x
20.6x
73.0x
Price/Sales
1.4x
0.7x
0.8x
Price/Book Value
2.4x
1.4x
1.7x
Price/Cash Flow
11.2x
8.2x
11.2x
Enterprise Value/EBIT
6.4x
11.2x
12.4x
Enterprise Value/EBITDA
5.4x
5.7x
9.5x
Enterprise Value/Sales
1.1x
0.6x
1.3x
Total Debt/Enterprise Value
0.0x
0.0x
0.4x
Total Debt/EBITDA
0.0x
0.0x
3.8x
EPS (basic)
3.11
1.27
0.82
Gross Margin
62.6%
42.7%
52.4%
Operating Margin
16.6%
5.4%
10.4%
Pretax Margin
16.6%
4.8%
1.7%
Net Margin
10.0%
3.2%
1.2%
Return on Assets
14.1%
5.3%
1.2%
Return on Equity
19.6%
7.2%
3.0%
Return on Total Capital
19.6%
7.0%
1.7%
Return on Invested Capital
19.6%
7.0%
1.7%
Basic DuPont ROE (3 Step)
19.6%
7.2%
3.0%
Extended DuPont ROE (5 Step)
19.6%
7.2%
3.0%
0.2
0.1
0.2
90.0x
45.9x
14.4x
4.1
7.9
25.3
1.4x
2.6x
4.6x
Days of Inventory on Hand
257.1
139.1
79.0
Payables Turnover
13.5x
12.2x
12.4x
Days of Payables Outstanding
27.0
30.0
29.4
Cash Conversion Cycle (Days)
234.1
117.0
74.9
Total Asset Turnover
1.3x
1.6x
0.7x
Working Capital Turnover
2.1x
4.2x
5.1x
Current Ratio
4.27
2.87
1.99
Quick Ratio
2.40
1.04
1.23
Cash Ratio
2.17
0.51
0.55
Valuation Price/Earnings
The gross margin ratio is a key indicator of how a company in this industry is managing its material and labor costs. Companies with wiggle room in this area will have a substantial advantage in the coming months. Companies within this industry will need to manage inventory very closely in 2011 as volatility in sales will remain. Companies with large amounts of capital tied up in inventory will be at a competitive disadvantage as interest rates are expected to increase throughout the year. However, because of low change in consumer tastes within this industry, there is little risk that inventory will become obsolete. Also, having plenty of inventories available can make planning ahead much easier, possibly reducing shipping and other costs (avoiding air-freight, etc.).
Profitability
Receivables turnover will also be an important factor to manage in the near term. Because companies collect most payments at point of sale, this is a key indicator of what portion of sales is being made directly to customers. JOSB leads its peers in many of the profitability, efficiency, and liquidity categories. The company has a large amount of cash on its balance sheet ($9.80/share) which provides flexibility to management and brings peace of mind to shareholders. JOSB’s current ratio is nearly twice has high as its competitors. The company also has low debt on its balance sheet as a majority of its debt comes in the form of operating leases. JOSB has been able to take advantage of the weak commercial real estate market and has seen a reduction in lease expense in recent years. This reduction should help to offset increases in input costs.
Efficiency Revenue/Employee Receivables Turnover Days of Sales Outstanding Inventory Turnover
Liquidity
Finally, and perhaps most importantly, JOSB has posted extremely high ROE and ROA numbers in comparison to its peers. This is a sign that management is doing more with less and rewarding shareholders appropriately.
Source: FactSet
3
THE UNIVERSITY OF IOWA
Henry Fund Research
Henry B. Tippie School of Management
ECONOMIC OUTLOOK
Unemployment Rate: The unemployment rate is an important driver within this industry in that it directly influences both disposable income and consumer sentiment. This industry is especially affected by job loss. When consumers are unemployed they are not in need of formal business attire and discretionary spending is cut out of the budget. The unemployment rate has been hovering around 10% since 2009. However, the first part of 2011 has brought a slight decrease in the unemployment rate and we expect it to continue in 2011, especially as it pertains to whitecollar employment.
The most important economic factors affecting revenue for JOSB are consumer sentiment, per capita disposable income, and the unemployment rate. Consumer Sentiment Index: The consumer sentiment index measures the level of consumer confidence, which affects household expenditures. Since 2006 consumer discretionary spending has decreased significantly in the U.S. due to the recent recession. However, since 2008 consumers’ spending power has increased. We expect this trend to continue throughout 2011.
Source: IBIS World
Overall we feel the economic outlook is very positive for JOSB and will be a strong driver for increased demand and revenue in this space.
Source: IBIS World
Per Capita Disposable Income: As per capita disposable income increases within the economy, demand for men’s clothing will increase. Customers within this industry are very sensitive to changes in their level of disposable income. This number has increased since the recession in 2008 and we expect a further increase in 2011.
CATALYSTS FOR GROWTH Casual wear: Recently there has been a slight shift in trend toward casual wear as companies in the U.S. begin to allow this type of dress in the workplace. We expect this product segment to increase in prevalence over time as employers relax dress codes. JOSB is positioned very well to accommodate this shift in demand. The company offers many different types of casual clothing options including sweaters, polo tshirts, and casual slacks. E-Commerce: In 2009 JOSB revamped its website and internet sales have become a growing source of revenue for the company. Management has announced plans to enter international markets via ecommerce in the near-term. The company plans to advertise internationally, directing customers to purchase products online with free shipping on orders
Source: IBIS World
4
THE UNIVERSITY OF IOWA
Henry Fund Research
Henry B. Tippie School of Management
of qualifying amounts. This presents a remarkable opportunity for JOSB to expand its brand into a new customer base with only marginal investment.
spending during the recession. Customers have grown used to buying this type of clothing on-sale. Price increases, due to increasing raw materials costs, may be met with resistance.
Factory Outlet Stores: JOSB has recently made statements that it plans to open factory outlet stores within a 5-year horizon. Though few other details are known about this move, it’s clear there are many positive reasons for the company to do so. Outlet stores would allow JOSB to better control profit margins on overstock and seasonal items and could provide an alternative to offering aggressive sales within its consumer-direct stores.
JOSB share prices are at a 52-week high and near
our price target. It is also trading at 15.6x next year’s earnings, a level consistent with other competitors in the industry.
VALUATION The key assumptions used in the valuation model are the following:
INVESTMENT POSITIVES JOSB has no long-term debt on its balance sheet
1) Projected Number of Stores Opened: Our revenue forecast was calculated as a function of the number of stores open, and the amount of revenue per store the company can expect to yield going forward. Management has provided guidance revealing a plan to reach 600 stores within three to four years. The model was built conservatively, projecting that the company will reach 600 stores between 2013 and 2014.
(other than operating leases) and funds store growth using operating profit. JOSB consistently posts gross profit margins and
operating profit margins far higher than any other competitor within the industry. JOSB currently holds $9.80 per share in cash and
cash equivalents on its balance sheet. The company is positioned well to take advantage of 2) Revenue per Store: Revenue per store has been a business opportunities that arise. It is also possible fairly constant amount over the last 5 years with a that JOSB could offer a dividend or announce a slight trend upward. A 5-year historical average share repurchase in the near-term. was used to project revenue per store through 2015 and into steady state. A constant number Return on equity has been near 20% year over year was used instead of a growing number to maintain and is expected to remain high. a conservative approach. Further information regarding this decision is detailed in the next paragraph.
INVESTMENT NEGATIVES
3) Improved Economic Environment: We believe JOSB will experience an improved economic environment in the near term. Consumer sentiment, the U.S. unemployment rate, and per capita disposable income are expected to improve steadily, allowing for an increase in revenue for JOSB. We believe the company will reach the 600 store mark between 2013 and 2014 mainly as a result of the positive effect of the improving economic environment. As a result, we have held revenue per store constant at a historical average to provide a conservative estimate of revenue. We feel this is the most probable outcome.
Performance in this industry is highly dependent
on consumers’ discretionary income and would suffer substantially in the event of a double-dip recession or a sudden increase in unemployment. Suits and formal wear have historically accounted
for more than 75% of sales. A trend toward more casual clothing in the workplace could negatively affect margins at JOSB. Customers at every level are becoming more price
sensitive in response to increased promotions and marketing strategies implemented to stimulate
5
THE UNIVERSITY OF IOWA
Henry Fund Research
Henry B. Tippie School of Management
REFERENCES
4) Depreciation: Depreciation is projected using a historical 5-year average. The company has maintained a depreciation rate near 8% (as compared to gross PPE) and we feel this is an accurate estimate.
1. IBIS World Industry Report: US Men’s Clothing Stores in the US 2. www.wto.org 3. IBIS World Industry Report: Department Stores in the US
5) Property, Plant, & Equipment (PPE): PPE is calculated as a function of the number of stores open, and growth of PPE per store of 8% per year until steady state. The rationale behind this assumption is that as the company adds more and more stores, the average cost of maintenance, upkeep, and remodeling will increase over time due to inflation and the aging of existing stores.
4. www.ibisworld.com 5. United States www.dol.gov
Department
of
Labor,
6. The Men’s Wearhouse Annual Report 7. Jos. A. Bank Annual Report 8. Phillips-Van Heusen Annual Report
6) Operating Leases: The present value of operating lease expense was forecast as a function of the number of stores open and an average present value of operating leases per store. This amount was estimated using a 5-year historical average and we feel this is a conservative estimate going forward, considering the average present value lease liability has fallen slightly from year to year since 2006.
9. Casual Male Retail Group Annual Report 10. www.finance.yahoo.com 11. Industry Confronting More Austerity. By: Monget, Karyn, WWD: Women's Wear Daily, 01495380, 11/29/2010, Vol. 200, Issue 112 12. www.investopedia.com 13. “Retail Rebound Clouded by Rising Costs”, Elizabeth Holmes, The Wall Street Journal, 2/4/2011
7) Operating Profit Margin: JOSB has been able to steadily increase its operating profit margin from 13.30% in 2006 to 15.45% in 2010. We project this trend to continue as the company grows and expenses such as SG&A become a smaller percentage of sales.
14. “.Gap, Wal-Mart Clothing Costs Rise on ‘Terrifying’ Cotton Prices”, Michael Wei, Bloomberg.com, 11/15/2010 15. “Key Economic Measures of the United States Economy”, Unknown, MoneyRates.com, 2/4/2011
We place a HOLD recommendation on JOSB with a target price range of $43-48. The stock is currently trading at its 52-week high, a P/E consistent with that of the industry. Though we believe JOSB has strong earnings potential, that improving economic conditions will allow for growth, and that the company is positioned well within the industry, we feel these factors are currently priced into the stock and that better investment alternatives exist elsewhere at this time. However, if the share price would fall near $40 without substantial change to the economic environment, reconsideration and further analysis would be advised.
16. “Attention, Stockpickers”, Barron’s (TWJ), 1/15/2011
Lauren
Rublin,
17. FactSet
IMPORTANT DISCLAIMER This report was created by a student(s) enrolled in the Applied Securities Management (Henry Fund) program at the University of Iowa’s Tippie School of Management. The intent of these reports is to provide potential employers and other interested parties an example of the analytical skills, investment knowledge, and communication abilities of Henry Fund students. Henry Fund analysts are not registered investment advisors, brokers or officially licensed financial professionals. The investment opinion contained in this report does not represent an offer or solicitation to buy or sell any of the aforementioned securities. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Henry Fund may hold a financial interest in the companies mentioned in this report.
6
THE UNIVERSITY OF IOWA
Henry Fund Research
Henry B. Tippie School of Management
7
Jos. A. Bank Clothiers Inc. Income Statement 2008 Final
2009 Final
2010 Final
2011E Forecast
2012E Forecast
2013E Forecast
2014E Forecast
2015CV Forecast
604.0 225.4
695.9 265.0
770.3 298.2
785.1 298.3
843.4 320.5
910.2 345.9
985.3 374.4
1,018.7 387.1
206.9
244.3
275.8
275.6
296.0
319.5
345.8
357.6
18.5
20.6
22.4
22.8
26.5
31.0
34.6
38.6
Gross Income
378.6
431.0
472.1
486.8
520.8
559.7
604.8
622.5
SG&A Expense
416.0
Sales/Revenue Cost of Goods Sold (COGS) incl. D&A COGS excluding D&A Depreciation & Amortization Expense
295.9
334.3
353.1
352.1
369.7
389.9
412.3
Other Operating Expense
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
EBIT (Operating Income)
82.8
96.7
119.0
134.7
151.1
169.7
192.6
206.4
Nonoperating Income (Expense) - Net
1.9
0.9
0.4
0.8
0.8
0.9
1.0
1.0
Interest Expense
0.4
0.4
0.4
1.6
1.7
1.8
2.0
2.0
Unusual Expense (Income) - Net
0.0
1.2
1.6
0.8
0.8
0.9
1.0
1.0
Pretax Income
84.3
96.0
117.4
131.6
147.7
166.1
188.6
202.4
Income Taxes
34.2
37.6
46.2
51.8
58.2
65.4
74.3
79.7
Consolidated Net Income
50.2
58.4
71.2
79.7
89.5
100.7
114.3
122.6
Net Income
50.2
58.4
71.2
79.7
89.5
100.7
114.3
122.6
Net Income available to Common
50.2
58.4
71.2
79.7
89.5
100.7
114.3
122.6
EPS (basic) Total Common Shares Outstanding Dividends/Share Operating Profit Margin
1.847
2.140
2.593
2.887
3.230
3.621
4.099
4.384
27.269
27.436
27.527
27.617
27.707
27.797
27.887
27.977
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
13.70%
13.89%
15.45%
17.16%
17.91%
18.65%
19.54%
20.27%
Jos. A. Bank Clothiers Inc. Balance Sheet 2008 Final
2009 Final
2010 Final
2011E Forecast
2012E Forecast
2013E Forecast
2014E Forecast
2015CV Forecast
82.08
122.88
191.59
202.75
266.63
339.74
432.98
548.43
Cash Only
0.00
0.00
21.85
26.92
84.49
151.06
237.53
345.96
Total Short Term Investments
0.00
0.00
169.74
175.83
182.14
188.68
195.45
202.47
13.01
11.61
6.76
6.44
6.92
7.46
8.08
8.35
206.83
209.24
218.32
336.11
361.04
389.64
421.81
436.11
11.44
13.58
15.14
21.59
23.19
25.03
27.10
28.01
313.36 357.30 431.81
566.89
657.78
761.87
889.96
1020.90
Assets Cash & ST Investments
Total Accounts Receivable Inventories Other Current Assets (Pre-paid expenses) Total Current Assets Net Property, Plant & Equipment
126.24
133.59
124.14
121.79
142.06
166.80
177.09
188.11
Property, Plant & Equipment - Gross
226.56
251.85
262.39
282.80
329.62
385.38
430.32
479.98
Accumulated Depreciation
100.33
118.26
138.25
161.01
187.55
218.58
253.22
291.87
0.51
0.48
0.42
0.86
0.93
1.00
1.08
1.12
440.10 491.37 556.36
689.54
800.77
929.67
1068.14
1210.13
Other Assets Total Assets Liabilities & Shareholders' Equity
7.34
8.27
0.00
0.00
0.00
0.00
0.00
0.00
Accounts Payable
47.38
29.77
18.23
32.63
33.89
38.21
38.65
40.33
Income Tax Payable
20.81
17.72
19.92
30.01
33.68
37.88
43.01
46.15
Other Current Liabilities
50.69
55.41
70.40
90.76
97.49
105.21
113.90
117.76
126.22 111.17 108.55
153.40
165.06
181.30
195.57
204.24
ST Debt & Curr. Portion LT Debt
Total Current Liabilities Long-Term Debt
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Deferred Taxes
1.21
2.61
1.61
2.14
2.03
1.92
2.06
1.95
50.20
55.78
52.90
61.44
71.61
83.73
93.49
104.28
Total Liabilities
178.93 169.55 163.05
216.98
238.71
266.95
291.12
310.48
Common Equity
261.17 321.81 393.31 80.79 82.95 83.25
472.56
562.06
662.72
777.02
899.66
83.00
83.00
83.00
83.00
83.00
Other Liabilities (Deferred Rent)
Additional Paid-In Capital/Capital Surplus
180.26
238.67
309.82
389.56
479.06
579.72
694.02
816.66
-0.07
0.01
0.24
0.00
0.00
0.00
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
Total Shareholders' Equity
261.17 321.81 393.31
472.56
562.06
662.72
777.02
899.66
Total Equity
261.17 321.81 393.31
472.56
562.06
662.72
777.02
899.66
Liabilities & Shareholders' Equity
440.10 491.37 556.36
689.54
800.77
929.67
1068.14
1210.13
Retained Earnings Other Appropriated Reserves Treasury Stock
Jos. A. Bank Clothiers Inc. Statement of Cash Flows 2008 Final
2009 Final
2010 Final
2011E Forecast
Net Income before Extraordinaries
50.17
58.41
71.16
79.74
Depreciation, Depletion & Amortization
18.48
20.61
22.38
22.77
Deferred Taxes & Investment Tax Credit
(3.15)
1.31
(2.54)
0.54
0.63
1.52
1.71
1.32
81.85 (8.31)
92.71 (7.97)
104.37
Changes in Working Capital
66.12 (2.41)
Net Operating Cash Flow
63.71
73.54
84.75
30.21
Operating Activities
Other Funds Funds from Operations
(74.16)
Investing Activities 27.70
35.11
16.33
20.42
Sale of Fixed Assets & Businesses
0.30
0.20
0.00
0.00
Purchase/Sale of Investments
0.00
0.00
(169.74)
0.00
Other Funds
0.00
0.00
0.00
0.00
(27.40)
(34.91)
(186.07)
(20.42)
Change in Capital Stock
1.87
1.54
0.23
0.00
Repurchase of Common & Preferred Stk.
0.00
0.00
0.00
0.00
Sale of Common & Preferred Stock
1.87
1.54
0.23
0.00
Issuance/Reduction of Debt, Net
0.00
0.00
0.00
0.00
Change in Current Debt
0.00
0.00
0.00
0.00
Change in Long-Term Debt
0.00
0.00
0.00
0.00
Other Funds
0.82
0.63
0.07
0.00
Capital Expenditures
Net Investing Cash Flow Financing Activities
Net Financing Cash Flow
2.69
2.16
0.30
0.00
Miscellaneous Funds
0.00
0.00
(0.00)
0.00
Net Change in Cash
39.00
40.79
(101.02)
9.79
Jos. A. Bank Clothiers Inc. Statement of Cash Flows 2011E Forecast
2012E Forecast
2013E Forecast
2014E Forecast
2015CV Forecast
Net Income before Extraordinaries
79.74
89.50
100.66
114.30
122.64
Depreciation, Depletion & Amortization
22.77
26.54
31.03
34.64
38.64
Deferred Taxes & Investment Tax Credit
0.54
(0.11)
(0.11)
0.14
(0.11)
Operating Activities
Funds from Operations Changes in Working Capital
103.04
115.93
131.57
149.09
161.17
Receivables
(79.52) 0.32
(15.40) (0.48)
(14.82) (0.55)
(20.67) (0.62)
(6.85) (0.27)
Inventories
(117.79)
(24.92)
(28.60)
(32.17)
(14.30)
Other Current Liabilities
20.36
6.73
7.72
8.69
3.86
Other Assets
(0.44)
(0.06)
(0.07)
(0.08)
(0.04)
Accounts Payable
14.41
1.26
4.31
0.45
1.68
Income Tax Payable
10.08
3.67
4.20
5.13
3.14
Pre-paid Expenses
(6.45)
(1.60)
(1.84)
(2.07)
(0.92)
Net Operating Cash Flow
23.52
100.53
116.75
128.42
154.32
Investing Activities (20.42)
(46.82)
(55.76)
(44.94)
(49.66)
(6.09)
(6.31)
(6.54)
(6.77)
(7.02)
8.54
10.17
12.12
9.76
10.79
(17.97)
(42.96)
(50.19)
(41.95)
(45.89)
Additional Paid-in Capital
(0.25)
0.00
0.00
0.00
0.00
Other Appropriated Reserve
(0.24)
0.00
0.00
0.00
0.00
Net Financing Cash Flow
(0.49)
Capital Expenditures Short term Investments Other Liabilities (Deferred Rent) Net Investing Cash Flow Financing Activities
0.00
0.00
0.00
0.00
Miscellaneous Funds
0.00
0.00
0.00
0.00
0.00
Net Change in Cash
5.07
57.57
66.57
86.47
108.43
Jos. A. Bank Clothiers Inc. JOSB 480838101 2478973 NASDAQ
Common stock
Income Statement (Industrial)
Sales/Revenue
2008 Final
2009 Final
2010 Final
2011E Forecast
2012E Forecast
2013E Forecast
2014E Forecast
2015CV Forecast
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Cost of Goods Sold (COGS) incl. D&A
37.3%
38.1%
38.7%
38.0%
38.0%
38.0%
38.0%
38.0%
COGS excluding D&A
34.3%
35.1%
35.8%
35.1%
35.1%
35.1%
35.1%
35.1%
3.1%
3.0%
2.9%
2.9%
3.1%
3.4%
3.5%
3.8%
Gross Income
62.7%
61.9%
61.3%
62.0%
61.8%
61.5%
61.4%
61.1%
SG&A Expense
49.0%
48.0%
45.8%
44.8%
43.8%
42.8%
41.8%
40.8%
0.0%
0.0%
0.0%
0.0%
Depreciation & Amortization Expense
Other Operating Expense
0.0%
0.0%
0.0%
0.0%
EBIT (Operating Income)
13.7%
13.9%
15.4%
17.2%
17.9%
18.7%
19.5%
20.3%
Nonoperating Income (Expense) - Net
0.3%
0.1%
0.0%
0.1%
0.1%
0.1%
0.1%
0.1%
Interest Expense
0.1%
0.1%
0.1%
0.2%
0.2%
0.2%
0.2%
0.2%
Unusual Expense (Income) - Net
0.0%
0.2%
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
Fixed Assets Impairment
0.0%
0.2%
0.2%
0.0%
0.0%
0.0%
0.0%
0.0%
Other Unusual Expense
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
14.0%
13.8%
15.2%
16.8%
17.5%
18.3%
19.1%
19.9%
Income Taxes
5.7%
5.4%
6.0%
6.6%
6.9%
7.2%
7.5%
7.8%
Consolidated Net Income
8.3%
8.4%
9.2%
10.2%
10.6%
11.1%
11.6%
12.0%
Net Income
8.3%
8.4%
9.2%
10.2%
10.6%
11.1%
11.6%
12.0%
Net Income available to Common
8.3%
8.4%
9.2%
10.2%
10.6%
11.1%
11.6%
12.0%
Pretax Income
Jos. A. Bank Clothiers Inc. Balance Sheet 2008 Final
2009 Final
2010 Final
2011E Forecast
2012E Forecast
2013E Forecast
2014E Forecast
2015CV Forecast
17.67%
26.45%
41.23%
25.82%
31.62%
37.33%
43.94%
53.84%
Cash Only
0.00%
0.00%
4.70%
3.43%
10.02%
16.60%
24.11%
33.96%
Total Short Term Investments
0.00%
0.00%
36.53%
22.39%
21.60%
20.73%
19.84%
19.88%
Total Accounts Receivable
2.80%
2.50%
1.45%
0.82%
0.82%
0.82%
0.82%
0.82%
44.51%
45.03%
46.99%
42.81%
42.81%
42.81%
42.81%
42.81%
Other Current Assets (pre-paid expenses)
2.46%
2.92%
3.26%
2.75%
2.75%
2.75%
2.75%
2.75%
Prepaid Expenses
0.00%
0.00%
3.26%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Assets Cash & ST Investments
Inventories
2.46%
2.92%
0.00%
0.00%
0.00%
0.00%
67.44%
76.90%
92.93%
72.20%
78.00%
83.71%
Net Property, Plant & Equipment
27.17%
28.75%
26.72%
15.51%
16.85%
18.33%
17.97%
18.47%
Property, Plant & Equipment - Gross
48.76%
54.20%
56.47%
36.02%
39.08%
42.34%
43.67%
47.12%
Buildings
2.57%
3.14%
3.17%
0.00%
0.00%
0.00%
0.00%
0.00%
Land & Improvements
0.08%
0.39%
0.39%
0.00%
0.00%
0.00%
0.00%
0.00%
Machinery & Equipment
8.01%
8.93%
9.53%
0.00%
0.00%
0.00%
0.00%
0.00%
Other Property, Plant & Equipment
38.11%
41.74%
43.38%
0.00%
0.00%
0.00%
0.00%
0.00%
Accumulated Depreciation
21.59%
25.45%
29.75%
20.51%
22.24%
24.02%
25.70%
28.65%
0.11%
0.10%
0.09%
0.11%
0.11%
0.11%
0.11%
0.11%
94.72% 105.75% 119.74%
87.83%
94.95%
102.14%
108.41%
118.79%
Miscellaneous Current Assets Total Current Assets
Other Assets Total Assets
90.32% 100.22%
Liabilities & Shareholders' Equity
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
ST Debt & Curr. Portion LT Debt
1.58%
1.78%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
10.20%
6.41%
3.92%
4.16%
4.02%
4.20%
3.92%
3.96%
Accounts Payable
4.48%
3.81%
4.29%
3.82%
3.99%
4.16%
4.37%
4.53%
Other Current Liabilities
10.91%
11.93%
15.15%
11.56%
11.56%
11.56%
11.56%
11.56%
Total Current Liabilities
27.17%
23.93%
23.36%
19.54%
19.57%
19.92%
19.85%
20.05%
Long-Term Debt
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Deferred Taxes
0.26%
0.56%
0.35%
0.27%
0.24%
0.21%
0.21%
0.19%
Deferred Taxes - Credit
0.26%
0.56%
0.35%
0.00%
0.00%
0.00%
0.00%
0.00%
Income Tax Payable
10.80%
12.00%
11.39%
7.83%
8.49%
9.20%
9.49%
10.24%
Other Liabilities (excl. Deferred Income)
0.28%
0.22%
0.23%
0.00%
0.00%
0.00%
0.00%
0.00%
Deferred Income
0.00%
11.78%
11.16%
0.00%
0.00%
0.00%
0.00%
0.00%
Total Liabilities
38.51%
36.49%
35.09%
27.64%
28.30%
29.33%
29.55%
30.48%
Common Equity
56.21%
69.26%
84.65%
60.19%
66.65%
72.81%
78.86%
88.31%
Additional Paid-In Capital/Capital Surplus
17.39%
17.85%
17.92%
10.57%
9.84%
9.12%
8.42%
8.15%
Retained Earnings
38.80%
51.37%
66.68%
49.62%
56.80%
63.70%
70.44%
80.17%
Other Appropriated Reserves
-0.01%
0.00%
0.05%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Total Shareholders' Equity
56.21%
69.26%
84.65%
60.19%
66.65%
72.81%
78.86%
88.31%
Total Equity
56.21%
69.26%
84.65%
60.19%
66.65%
72.81%
78.86%
88.31%
Liabilities & Shareholders' Equity
94.72% 105.75% 119.74%
87.83%
94.95% 102.14% 108.41% 118.79%
Other Liabilities
Treasury Stock
Jos. A. Bank Clothiers Inc. Statement of Cash Flows 2008 Final
2009 Final
2010 Final
2011E Forecast
Net Income before Extraordinaries
8.3%
8.4%
9.2%
10.2%
Depreciation, Depletion & Amortization
3.1%
3.0%
2.9%
2.9%
Deferred Taxes & Investment Tax Credit
-0.5%
0.2%
-0.3%
0.1%
0.1%
0.2%
0.2%
0.2%
10.9%
11.8%
12.0%
13.3%
-0.4%
-1.2%
-1.0%
-9.4%
Receivables
0.0%
-0.2%
0.2%
0.0%
Inventories
-3.9%
-0.3%
-1.2%
-15.0%
Accounts Payable
0.9%
-2.5%
-1.5%
1.8%
Other Accruals
1.3%
1.2%
1.6%
0.0%
Other Assets/Liabilities
1.3%
0.8%
-0.1%
0.0%
10.5%
10.6%
11.0%
3.8%
Capital Expenditures
4.6%
5.0%
2.1%
2.6%
Sale of Fixed Assets & Businesses
0.0%
0.0%
0.0%
0.0%
Purchase/Sale of Investments
0.0%
0.0%
-22.0%
0.0%
Purchase of Investments
0.0%
0.0%
22.0%
0.0%
Other Funds
0.0%
0.0%
0.0%
0.0%
-4.5%
-5.0%
-24.2%
-2.6%
Change in Capital Stock
0.3%
0.2%
0.0%
0.0%
Repurchase of Common & Preferred Stk.
0.0%
0.0%
0.0%
0.0%
Sale of Common & Preferred Stock
0.3%
0.2%
0.0%
0.0%
Proceeds from Stock Options
0.0%
0.0%
0.0%
0.0%
Other Proceeds from Sale of Stock
0.3%
0.2%
0.0%
0.0%
Issuance/Reduction of Debt, Net
0.0%
0.0%
0.0%
0.0%
Change in Current Debt
0.0%
0.0%
0.0%
0.0%
Change in Long-Term Debt
0.0%
0.0%
0.0%
0.0%
Issuance of Long-Term Debt
0.0%
0.0%
0.0%
0.0%
Reduction in Long-Term Debt
0.0%
0.0%
0.0%
0.0%
Other Funds
0.1%
0.1%
0.0%
0.0%
Net Financing Cash Flow
0.4%
0.3%
0.0%
0.0%
Operating Activities
Other Funds Funds from Operations Changes in Working Capital
Net Operating Cash Flow Investing Activities
Net Investing Cash Flow Financing Activities
2008
2009
2010
2011E
2012E
2013E
2014E 2015CV
Normal Cash (min of 2% of sales or bal)
12.08
13.92
15.41
15.70
16.87
18.20
19.71
20.37
Accounts Receivable
13.01
11.61
6.76
6.44
6.92
7.46
8.08
8.35
206.83
209.24
218.32
336.11
361.04
389.64
421.81
436.11
11.44
13.58
15.14
21.59
23.19
25.03
27.10
28.01
243.35 248.34 255.62 379.85 408.01 440.33 476.69
492.85
Operating Current Assets:
Inventories Prepaid Expenses
Operating Current Liabilities: Accounts Payable
47.38
29.77
18.23
32.63
33.89
38.21
38.65
40.33
Income Tax Payable
20.81
17.72
19.92
30.01
33.68
37.88
43.01
46.15
Other Current Liablities
50.69
55.41
70.40
90.76
97.49
105.21
113.90
117.76
118.88 102.91 108.55 153.40 165.06 181.30 195.57
204.24
Net PPE: Property, Plant & Equipment - Gross
226.56
251.85
262.39
282.80
329.62
385.38
430.32
479.98
Accumulated Depreciation
100.33
118.26
138.25
161.01
187.55
218.58
253.22
291.87
126.24 133.59 124.14 121.79 142.06 166.80 177.09
188.11
Other Long-term Operating Assets: PV of Operating Leases Other Assets
275.80
276.20
277.80
309.95
334.50
362.12
374.40
386.67
0.51
0.48
0.42
0.86
0.93
1.00
1.08
1.12
276.31
276.68
278.22
310.82
335.43
363.12
375.48
387.79
50.20
55.78
52.90
61.44
71.61
83.73
93.49
104.28
476.82 499.93 496.54 597.61 648.83 705.23 740.21
760.23
Other Long-term Operating Liabilities: Other Liabilities (deferred rent) Invested Capital
EBITA (Operating Income)
2008
2009
2010
2011E
2012E
2013E
2014E
2015CV
82.75
96.69
119.00
134.72
151.06
169.74
192.56
206.45
34.17
37.56
46.23
51.84
58.19
65.44
74.31
79.73
Adjusted Taxes: Income Taxes Plus Tax Shield on Int Exp
0.14
0.15
0.16
0.62
0.66
0.72
0.78
0.80
Minus Tax on Interest (or Invest) Income
0
0
0
0
0
0
0
0
Plus Tax Shield on Amortized Goodwill
0
0
0
0
0
0
0
0
Minus Tax on Non-Operating Income
0.76
0.34
0.15
0.31
0.33
0.36
0.39
0.40
Plus Tax Shield on Unusual Expense
0.00
0.47
0.63
0.31
0.33
0.36
0.39
0.40
33.54
37.84
46.87
52.46
58.85
66.16
75.09
80.54
1.21
2.61
1.61
2.14
2.03
1.92
2.06
1.95
Total Change in Deferred Taxes: Deferred Tax Liability Deferred Tax Asset
NOPLAT
0
0
0
0
0
0
0
0
-1.39
1.40
-1.00
0.54
-0.11
-0.11
0.14
-0.11
47.82
60.24
71.14
82.79
92.10
103.47
117.61
125.80
ROIC = NOPLAT / Beg Inv Capital NOPLAT Beg. Invested Capital
2008
2009
2010
2011E
2012E
2013E
2014E
2015CV
47.82
60.24
71.14
82.79
92.10
103.47
117.61
125.80
430.80
476.82
499.93
496.54
597.61
648.83
705.23
740.21
11.10%
12.63%
14.23%
16.67%
15.41%
15.95%
16.68%
17.00%
NOPLAT
47.82
60.24
71.14
82.79
92.10
103.47
117.61
125.80
Δ Invested Capital
46.02
23.11
3.39
101.07
51.22
56.40
34.98
20.03
1.81
37.13
74.53
-18.28
40.88
47.07
82.63
105.78
Beginning IC
430.80
476.82
499.93
496.54
597.61
648.83
705.23
740.21
ROIC
11.10%
12.63%
14.23%
16.67%
15.41%
15.95%
16.68%
17.00%
WACC
9.44%
9.44%
9.44%
9.44%
9.44%
9.44%
9.44%
9.44%
(ROIC - WACC)
1.66%
3.19%
4.79%
7.23%
5.97%
6.50%
7.23%
7.55%
7.14
15.21
23.93
35.90
35.66
42.20
51.01
55.90
ROIC
FCF
EP
2008
2009
2010
2011E
2012E
2013E
2014E
2015CV
604.01
695.908
770.316
785.12953
843.35
910.15
985.3
1018.7
422
460
473
505
545
590
610
630
Number of Stores Opened (during period)
48
40
14
36
40
45
20
20
Number of Stores (open at least 12 mos)
374
420
459
469
505
545
590
610
1.62
1.66
1.68
1.67
1.67
1.67
1.67
1.67
10.55%
15.21%
10.69%
1.92%
7.42%
7.92%
8.26%
3.39%
Revenue Number of Stores (end of period)
Rev/Store (same store) Revenue Growth
WACC Pre-Tax Cost of Debt
5.25%
Tax Rate
40%
After-Tax Cost of Debt
3.15%
Total Debt
277.8
D/(D+E) Share Price (as of 2/28/11) Shares Outstanding Market Cap E/(D+E) D+E Beta
0.02% $
46.11 27,620 1,273,558 99.98% 1,273,836 1.33
Risk Free Rate (10-year Treasury)
3.46%
Cost of Equity
9.45%
Expected Market Return
7.96%
Market Risk Premium
4.50%
WACC
9.44%
CV Growth Rate
3.39%
FCF Valuation Time Period
1
2
3
4
Year
2011E
2012E
2013E
2014E
2015 CV
FCF
-18.278
40.875
47.073
82.629
1663.566
Discount Rate PV of FCF PV-Operating
9.44%
9.44%
9.44%
9.44%
9.44%
-16.700
34.125
35.909
57.593
1159.520
2
3
4
1270.446
Excess Cash & Marketable Securities
177.67
Total PV Oper Leases
277.80
PV of Equity
1170.32
Shares Outstanding DCF Valuation
4
27.6 $
42.40
EP Valuation Time Period
1
4
Year
2011E
2012E
2013E
2014E
2015 CV
EP Valuation
35.904
35.663
42.196
51.008
923.360
Discount Rate PV of EP PV - Operating
9.44%
9.44%
9.44%
9.44%
9.44%
32.806
29.774
32.189
35.553
643.590
773.9111292
Excess Cash & Marketable Securities
177.67
PV Oper Lease
277.80
Beg Inv Capital
496.54
Sum of IC and EP
1170.32
Shares Outstanding
27.6
EP Valuation
$
42.40
Partial Year Adjust
$
42.72
Relative P/E Analysis (3/1/2011) EPS 10A
EPS 11E
EPS 12E
P/E 10
P/E 11
P/E 12
MW
Ticker
Men's Wearhouse
Company
Price 25.83
1.11
1.47
1.69
18.2
17.8
15.3
RL
Polo Ralph Lauren
123.59
4.50
5.81
6.54
18.9
21.3
18.9
PVH
Phillips-Van Heusen
58.72
2.83
3.94
4.83
13.9
14.8
12.2
CMRG
Casual Male Retail Group
4.21
0.14
0.33
0.39
20.0
12.7
10.8
17.8
16.7
14.3
Peer Average KSS
Kohl's Corp
53.39
3.65
4.34
4.94
13.9
12.3
10.8
SHLD
Sear's Holdings Corp
82.56
2.07
1.14
1.15
36.4
72.3
72.1
M
Macy's Inc
23.29
2.11
2.31
2.57
11.0
10.1
9.1
DDS
Dillard's Inc
41.70
2.50
3.12
3.43
15.9
13.4
12.2
19.3
27.0
26.1
17.4
15.6
13.9
Peer Average JOSB
Jos A Bank
45.00
2.59
2.89
3.23
Scenario Analysis Key Variables: Top Line
1) Number of stores in a given year (same store) -- Thought to encompass growth and IC assumptions
Top Line
2) Rev per store (same store)
Bottom Line
3) Operating Profit Margin "Best Case" Scenario
(Probability 0.25) 2011E
2012E
2013E
2014E
2015 CV
Number of stores:
500
536
576
621
641
Rev per store:
1.8
1.8
1.8
1.8
1.8
19.00%
19.75%
20.49%
21.38%
22.11%
2011E
2012E
2013E
2014E
2015 CV
469
505
545
590
610
1.67
1.67
1.67
1.67
1.67
17.16%
17.91%
18.65%
19.54%
20.27%
Operating profit margin:
"Most Likely" Scenario
$
52.26
Price:
$
43.38
Price:
$
37.97
(Probability 0.50)
Number of stores: Rev per store: Operating profit margin:
"Worst Case" Scenario
Price:
(Probability 0.25) 2011E
2012E
2013E
2014E
2015 CV
Number of stores:
450
486
526
571
591
Rev per store:
1.6
1.6
1.6
1.6
1.6
15.10%
15.85%
16.59%
17.48%
18.21%
Operating profit margin:
Probability weighted price:
$
44.25
Liquidity Ratios
2008
2009
2010
2011E
2012E
2013E
2014E
2015CV
Current Ratio
2.48
3.21
3.98
3.70
3.98
4.20
4.55
5.00
Quick Ratio
0.75
1.21
1.83
1.36
1.66
1.92
2.26
2.73
Cash Ratio
0.65
1.11
1.77
1.32
1.62
1.87
2.21
2.69
Asset Turnover
4.78
5.21
6.21
6.45
5.94
5.46
5.56
5.42
A/R Turnover
46.7
56.5
83.9
119.0
126.3
126.6
126.8
124.0
Inventory Turnover
2.92
3.33
3.53
2.34
2.34
2.34
2.34
2.34
Debt Ratio
0.41
0.35
0.29
0.31
0.30
0.29
0.27
0.26
Debt-to-Equity Ratio
0.69
0.53
0.41
0.46
0.42
0.40
0.37
0.35
Activity Ratios
Financial Leverage Ratios
Profitability Ratios 62.69%
61.93%
61.29%
62.00%
61.75%
61.49%
61.38%
61.11%
Operating Profit Margin
Gross Profit Margin
13.70%
13.89%
15.45%
17.16%
17.91%
18.65%
19.54%
20.27%
Return on Assets
12.4%
12.5%
13.6%
12.8%
12.0%
11.6%
11.4%
10.8%
Return on Equity
21.4%
20.0%
19.9%
18.4%
17.3%
16.4%
15.9%
14.6%
Liquidity Ratios Current Ratio
Current Assets / Current Liabilities
Quick Ratio
Cash & Cash Equiv + Short Term Inv. + Accounts Receivable / Current Liabilities
Cash Ratio
Cash + Cash Equiv + Invested Funds / Current Liabilities
Activity Ratios Asset Turnover
Rev / PPE
A/R Turnover
Net Sales / Average Accounts Receivable
Inventory Turnover
Revenues / Inventory
Financial Leverage Ratios Debt Ratio
Total Liabilities / Total Assets
Debt-to-Equity Ratio
Total Liabilities / Shareholders Equity
Profitability Ratios Gross Profit Margin
Gross Profit / Revenue (net sales)
Return on Assets
Net Income / Average Total Assets
Return on Equity
Net Income / Average Shareholders Equity
Payout Policy Ratios Payout Ratio
Dividends per Share / Earnings per Share
