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Jos. A. Still Making Bank


Retailer defies recession.

When I think of the Jos. A. Bank (JOSB), I think of Yogi Berra's saying "Nobody goes there because it is too crowded."

Only in the case of Jos, it sounds like this: "Everybody goes there, because it isn't crowded." As most men who shop there will attest, you're lucky to see only a handful of customers at any given time. Nevertheless, it seems that Jos operates in a very different economy, and there's an incredible disconnect between its performance this year and that of the rest of the economy, as well as of other retailers.

Jos reported third-quarter numbers yesterday - and they were stellar, even by a healthy economy's standards; in this one, negative double-digit same-store sales for retailers have become the norm. Jos reported same-store sales of 7% for the quarter (the company doesn't report monthly numbers any more). Total sales were up 13.7%. Operating profits before taxes were up 20.3%. Cash was up year-over-year, and inventory growth lagged sales. Every single metric was simply beautiful.

A great number of their stores were opened over the last 3 years, which puts them in the category of "immature." New stores, almost by definition, generate lower sales than mature stores. As stores mature, same-store sales rise and profit margins expand. In addition, the company is able to spread advertising dollars against a large store base - which is another reason why the margins increased.

By year end, Jos should have over $100 million in cash, which is about a quarter of its market cap. The margin expansion may actually continue into next year. Jos said it will slow down store openings next year, but will increase offerings of big and tall merchandise. I believe this will help Jos generate more free cash flow, as well as drive same-store sales (a much higher margin).

I presented Jos. A. Bank at Value Investing Congress in Pasadena this year (see slide 31 and on here).
No positions in stocks mentioned.

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