Document View

Analysts say the stock is cheap and could trade around $40 a share or better as the company gains market share, thanks to catchy promotions and expanded marketing.

(c) 2009 Dow Jones & Company, Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission.

Jos. A. Bank Clothiers Inc. sells suits, but investors have been casual about its stock price.

For five consecutive quarters, the company's results have exceeded Wall Street expectations. Suits continue growing as a portion of the company's revenue, and same-store sales are rising while those of some competitors continue to fall.

Analysts say the stock is cheap and could trade around $40 a share or better as the company gains market share, thanks to catchy promotions and expanded marketing. Shares of the company have risen about 30% in the last 12 months and have traded mostly in the $30s since early April. Three analysts rate the stock a "buy," while three firms have a "hold" rating.

Analysts caution that Bank's marketing efforts will weigh on margins and that sales gains may not last.

C.L. King analyst Scott Krasik calls Bank's balance sheet "rock solid." Its growth prospects are also seen as better than average as department stores fail, rival Men's Wearhouse Inc. struggles with profit margin and competitors such as S&K Famous Brands Inc. liquidate.

Despite the recession, Bank's total suit sales rose more than 40% in its fiscal first quarter from a year earlier to represent 38% of the company's sales, up from 30%. The company also sells sportswear, other clothing and accessories. Same-store sales increased 4.3% in the quarter, which ended May 2, while the latest quarterly sales at Men's Wearhouse fell 4.7%.

Bank won over Wall Street with its efforts to negotiate competitive pricing from suppliers. "We do pretty aggressive ongoing pricing negotiations with our suppliers and the market conditions have made them somewhat hungrier, so we have been able to achieve lower pricings for goods for the fall," Chief Executive Neal Black says. He expects the company to open 10 to 15 stores this year.

Late last year, the company offered deep discounts to encourage penny-pinching consumers to shop. It also placed ads for the first time on the ESPN sports cable network, moving Bank beyond CNBC and Fox News.

The company says its number of customers rose 16% to 4.4 million last year. Analysts expect further gains for the current quarter.

Sterne Agee analyst Margaret Whitfield has high hopes for the company. She cites Bank's "eye-popping promotions," including a risk-free-suit offer, in which customers who can prove they lost their jobs would get their money back but be allowed to keep the suit.

But some analysts have expressed concern that Bank's gross margins will decline as the effect of its price negotiations with suppliers run their course. There is also concern that same-store sales may slow as the recession persists.

Richard Jaffe, an analyst at Stifel Nicolaus, cautions that Bank will likely be forced to continue running promotions for big shopping holidays, lifting sales but pressuring margins. He says in a note that many customers have become accustomed to paying 40% to 70% off ticketed prices.

Credit: By Aja Carmichael