Sources:
Sources:
Here's the Story: See the justification for rejecting the offer toward the bottom
Jos. A. Bank Clothiers Inc. has approached Men's Wearhouse
Inc. about a combination of the two companies, according to people familiar
with the matter, a proposed deal that would create a nationwide powerhouse in
men's apparel.
It isn't clear whether the approach, made in recent weeks,
will lead to a deal or what form any such tie-up would take. With a market
value of $1.17 billion, Jos. A. Bank is smaller than Men's Wearhouse, a seller
of discount suits that sports a market value of $1.68 billion.
Spokespeople for the two companies couldn't be reached for
comment.
Merging Jos. A. Bank and Men's Wearhouse could help the
companies cut costs and otherwise bolster themselves in a tough sales
environment. Jos. A. Bank, based in Hampstead, Md., is a more than century-old
company with over 600 stores selling men's tailored and casual clothing,
according to its website. Men's Wearhouse, meanwhile, has 1,137 stores,
according to its website. Its Men's Wearhouse, Moores and K&G stores sell
suits and sport coats; the company is also in the lucrative tuxedo-rental business.
Men's Wearhouse has recently experienced turmoil in its
boardroom. In June, the company's chairman, George Zimmer was ousted in a
public spat between him and others at the company he co-founded 40 years ago, a
dispute that centered on his desire to take over the company. Mr. Zimmer said
at the time that he had disagreed with the company's direction and "the
board has inappropriately chosen to silence my concerns."
Mr. Zimmer opened the first Men's Wearhouse with a
hand-painted sign and $7,000 in 1973 and has been the face of the retail
chain's advertising ever since. With his gray beard and avuncular manner, Mr.
Zimmer delivered his signature line in television commercials: "You're
going to like the way you look. I guarantee it."
He recently held 3.7% of the company's stock, making him one
of its largest shareholders, according to FactSet. It is unclear whether Mr.
Zimmer is involved in discussions about the company's future.
The company (MW) has reworked its inventory to suit a
younger audience in recent years. It added a slim-fit line and now rents some 3
million tuxedos a year to people ages 18-30. Its results have been under
pressure lately, however, with fiscal second-quarter net sales—reported in
September—falling 2.3% to $647.3 million. Men's Wearhouse said then:
"While the Company continues to feel confident about its merchandising and
operating strategies, it has become increasingly concerned about the current
macro trends in the apparel industry."
Jos. A. Bank has also faced headwinds lately, last month
reporting a 10.7% drop in sales to $232.5 million in its fiscal second quarter.
In a news release then, the company's Chief Executive R. Neal Black said:
"Customers did not respond as well to some of our highly promotional
marketing campaigns as they did in the prior year."
JoS. A. Bank in June said in a statement that it's
"considering strategic opportunities to enhance shareholder value,
including seeking potential acquisitions to facilitate additional growth.
Jos. A. Bank had no debt and more than $300 million of cash
and short-term investments in August, which could help it mount a bid for its
larger rival.
Jos. A. Bank sells men's tailored and casual clothing,
sportswear and footwear. While it targets a more established male professional,
it's known for generous promotions like buying one suit or sport coat and
getting three for free.
Houston-based Men's Wearhouse sells men's sportswear and
suits through its namesake chain of stores, as well as the Moores and K&G
retail chains. Recently, it's been going after younger shoppers with suits with
slimmer silhouettes. It's also trying to raise the average ticket price and
announced in July that it's buying upscale Joseph Abboud brand for about $97.5
million in cash.
Still, Men’s Wearhouse appears to have been unmoved by the
offer. In its response on Wednesday, the company emphasized that it has twice
as many stores as Jos. A. Bank and that it had reported 13 consecutive quarters
of growth in same-store sales in its core stores; by contrast, its competitor
has reported three straight quarters of declining revenue.
Men’s Wearhouse also defended its plans to right itself,
including by exploring a sale of its low-margin K&G division and building
on its acquisition of the higher-end Joseph Abboud brand. It argued that Jos.
A. Bank was trying to seize upon what it described as a short-term drop in its
stock price.
Men’s Wearhouse October Investor Presentation: Justification for rejecting
the Jos. A Bank Offer (Source: Men’s Warehouse website)
#1- Jos. A Bank taking
advantage of temporary dip in MW stock price (Slide 4)
#2- MW’s sales, EBITDA
and EPS all growing- faster than JA Bank (Slide 5)
EBITDA: Earnings Before Interest, Taxes, Deprecation
and Amortization
CAGR: Compound Annual Growth
Rate
Definition: The rate at which the
investment would have grown, it
It grew at a steady rate.
#3- MW stock share
repurchases: Increase shareholder return (Slide 6)
How? Fewer shares outstanding, same dollar
amount of earnings
= higher earnings per share
#4- Same store sales
growth: A key financial measure for retail stores (Slide 7)
Why?
Indicates that your retail plan is succeeding…
Store performance improving.
#5- Free cash flow increases allow for MW business expansion
Free Cash Flow (Defined): Operating
cash flow less capital expenditures
In other
words: Represents cash generated after paying for asset needs
(Source:
Investopedia)
#6- MW Tux Business: Higher
margins, brings in younger shoppers
300,000
wedding parties, 50,000 proms in 2012 (Slide 11, 13)
#7- Joseph Abboud Line:
Sell higher apparel. Increases
overall profit margin (Slide 12)
#8- Jos A Bank customers very price sensitive, due
to aggressive
discounting (Slide 33). As a result, risk to JA
Bank’s margins
You'll find these financial concepts explained in my management accounting videos. Here's a link to those You Tube videos, with links and titles for each video:
http://stltest.net/management-accounting--video-links.html
Let me know how I can help!
Ken Boyd
St. Louis Test Preparation
(cell) (314) 913-6529
(email) ken@stltest.net
(website) www.stltest.net
(you tube channel) kenboydstl
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