Men’s Wearhouse is not looking good

Breaking the cycle of promotional ridiculousness at Jos. A. Bank is proving to be a far worse drag on sales and profits than parent company Men’s Wearhouse expected.



Men’s Wearhouse revealed the cost of breaking the promotional cycle at the acquired Jos. A. Bank stores on Nov. 6 when CEO Doug Ewert announced a huge downward revision to the combined company’s third quarter and full-year sales and profit outlook.



Same store sales for the third quarter ended Oct. 31, are expected to decline 14.6% at Jos. A. Bank stores, a figure the company said was far worse than previously expected and came on top of a prior year decline of 8.1%. The culprit was the ongoing transition away from intense promotional activity such as buy-one-get-three free which hurt traffic to Jos. A. Bank stores. As a result, the company said it expects to report third quarter earnings per share on Dec. 9, between 46 cents and 51 cents, well below the company’s earlier guidance of 87 cents.



"Despite these results, we continue to believe that transitioning away from the unsustainable promotional strategy we inherited from Jos. A. Bank and accelerating our new promotional strategy is the right thing to do for the long-term success of the Jos. A. Bank business,” Ewert said.



Men’s Wearhouse acquired Jos. A. Bank in June of last year to create the largest specialty retailer of menswear with more than 1,700 stores in the U.S. and Canada. The deal blended two companies with very different merchandising and marketing strategies. Men’s Wearhouse has long presented itself as a provider of quality products offered at every day fair prices supported by image advertising. Conversely, Jos. A. Bank was so intensely promotional that the absurdity of its buy-one-get-three free sale prompted Saturday Night Live to lampoon the strategy and the quality of products. Weaning shoppers off a relentless promotional cadence, as other retailers have discovered, inevitably causes volatility in customer traffic and sales that retailers always seem to underestimate.



“While we expected top-line volatility, as we previously stated, we did not anticipate that the impact from the traffic decline would occur to this degree, primarily because the prior year comparisons got progressively easier as the quarter progressed,” Ewert said. “We also believed the timing of the final buy-one-get-three free event in October would do more to offset earlier traffic declines than it did.”



Sales at Men’s Wearhouse stores are fine – comps increased 5.3% in the third quarter – but strength at those locations won’t be enough to offset further challenges at Jos. A. Bank stores where the company now expects fourth quarter same store sales to decline between 20% and 25%. The impact on the company’s full year profits is expected to be severe with earlier earnings per share guidance in the range of $2.70 to $2.90 reduced to $1.75 to $2.



Longer term, Ewert contends work is well underway to strategically rebuild Jos. A. Bank for consistent and profitable long-term growth.



“We implemented several strategies that we believe are potentially offsetting variables to the expected traffic and unit declines including new, updated and expanded assortments, higher average unit retail prices to go along with our new promotional strategy, additional investments in new promotional and brand building marketing, a new rewards-based customer loyalty program, and better selling behaviors, supported with extensive training and an updated incentive compensation structure for the Jos. A. Bank store employees.”