NYSE:TLRD TAILORED BRANDS, INC.
Sector financial performance:
This company, who primarily sells men’s apparels in their own stores or department stores under their own brands or third-party brands, has been grouped into men’s apparel retailer sector in clothing industry.
The organic demand for men’s dress of stores seems to have declined in 2016/17 from previous year as indicated by comparable store sales of companies in this sector, which went down by 2% in 2016/17 as we can see that, before the second quarter of 2016, comparable store sales were still growing at 3-5% annually.
However, after entering the second half of 2017 comparable sales rebounded and this rebounding continued into 2018, which presented a more than 2% growth rate so far driven by increasing transactions and units per transaction.
Unfavourable retail industry makes the profitability of stores that performance below average more sensitive to changes in stores’ traffics. Cutting expense to boost the margin by closing unprofitable stores or slowing down new opening of stores seems to be the most direct method for some of companies to improved margin and bring in more cash flows. It is particularly true for this sector where it seems that the SG&A spending is apparently higher than other clothing retailers.
Generally, the gross margins are between 39-43% (including distribution and occupancy costs), which is very similar with other clothing retailers. However, companies in this sector usually spend almost 38% of their total sales in SG&A including advertising, which is much higher than 30% of others retailers. The difference in SG&A was not from store operation and management because store related costs such as occupancy costs are also included in gross margin calculation (the gross margins of different type of stores are very close). Therefore, it is very possible that the difference in SG&A is from somewhere else such as higher costs sales channels or more expensive advertising spending. For example, it seems that there is a much smaller portion of sales for companies in this sector that comes from e-commerce compared with other retailers since we know that e-commerce has higher margin and less SG&A spending. Therefore, heavy SG&A dragged down profitability of some of companies in this sector. ( average 3% operating margin for 2018).
According our analysis, companies’ enterprise price/EBI is around 14 with interest/EBI ratio of 48%. Enterprise price/sales is 0.55 with interest/EBI ratio of 13%.
Data indicated that comparable stores sales have kept decreasing in 2016/17 after the increase of fiscal 2015. The closure of a significant number of stores also contributes the decrease in total retail sales of this company. However, we have seen that comparable stores sales stopped declining in the second half of 2017 and presented a 2% growth in the first three months of 2018.
First three months of fiscal 2018 compared with 2017(ended 20180503)
The retail sales (excluding extra weeks) of this company increased about 1.3% primarily attributable to increase of about 2% in comparable stores sales including rental stores due primarily to increase in transactions.
Fiscal 2017 compared with 2016(ended 20180203)
The retail sales (excluding extra weeks) of this company decreased about 3% primarily attributable to decrease from closed stores. Comparable stores sales including rental stores were basically flat.
The retail sales of this company decreased about 5% in the first 6 months of fiscal 2017 compared with the same period of 2016, primarily attributable to decrease of about 3.4% from closed stores and decrease of 1% from comparable stores sales including rental stores. Average comparable stores sales decreased about 1% due to fewer transactions.
The retail sales of this company decreased 4.7% in fiscal 2016 compared with 2015, primarily attributable to decrease of about 1.2% from closure of stores and decrease of about 3% from comparable stores sales. The average comparable stores sales decreased about 3% due to less transaction.
The organic retail sales (excluding acquisition and currency) of this company increased about 4% in fiscal 2015 compared with 2014, primarily attributable to increase of about 3% from comparable stores sales. Comparable stores sales increased about 3.4% due to increased selling price and more transactions. Comparable store sales from its newly acquired business decreased 16% in fiscal 2015.
This company’ gross margins for its retail segment have increased from about 43% of 2014 to 44.5% of 2017 (distribution costs and stores rental costs included) primarily due to leverage of stores rental costs as a result of closure of stores with lower margin and sales’ shifting to higher margin but it decreased below 44% in 2018 due to increasing promotions and slowing down store closure.
SG&A as percentage of sales (including advertising) has decreased from about 43% to 40% in fiscal 2017 primarily due to leverage of margin as stores with lower margin were closed. And then the SG&A as percentage of sales continued to go down to 35% in 2018 due to cutting in spending. Therefore, this company’s operating margin as percentage of sales has gone up to 8% in fiscal 2018.
This stock currently has an enterprise price/EBI ratio of 14. We think that its stock is being relatively undervalued considering its rebounding comparable sales and increasing cash flow while more promotion and lower gross margin.