When Joseph A. Bank and Men's Wearhouse merged together into Tailored Brands (NYSE: TLRD) back in 2014, their respective management teams felt there were synergies to be found in the menswear game. These days, it's fairly clear they were mistaken. The company's recent fourth-quarter report showed its continued decline, with a comp sales fall, a miss on revenue, and total sales down 10% year over year. Shares ended the day about 25% lower.
In this segment from MarketFoolery, host Chris Hill and Motley Fool Asset Management's Bill Barker talk about the business model, the ugly numbers, and whether there is any viable strategy to revitalize the operation, especially in light of Amazon's current push into the apparel game with Amazon Wardrobe.
A full transcript follows the video.
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This video was recorded on March 14, 2019.
Chris Hill: Let's move on to a retailer that is not doing well for shareholders, and that's Tailored Brands. This is the parent company of Men's Wearhouse and Joseph A. Bank. At one point this morning, the stock was down 26%. Fourth-quarter revenue came in lower than expected. Same-store sales dropped in the fourth quarter. Where are the synergies? [laughs] When this deal went through, the merging of these two entities whose sole purpose in life is to sell men's suits, or at least to sell them one suit and give away another two or three on top of that, I think we were all promised synergies. Where are the synergies?!
Bill Barker: I would have no idea where the synergies are for this. It's a couple of different brands that are at the top, Men's Wearhouse and Joseph A. Bank. Then, they've got a couple of other smaller brands, K&G and Moore's. All of them are shedding sales. At the management level, it's not just simply at the brand level, the whole operation is in a bit of trouble. You can go back to the Saturday Night Live ad mocking Joseph A. Bank three or four years ago. The stock's lost about 80% from that point in time.
Hill: Do you think the writing staff at Saturday Night Live is responsible for this stock dropping 80%?
Barker: I think they shone a rather brutal light on the business model. [laughs] What's going on here? Buy one suit, get three free? And to just endlessly, at the time, have ads for that. You just take a step back and say, how is that going to work? Who wants four suits all at the same time, just to start with? Why would they go there?
You're looking at comp sales down at all the stores, total sales down 10% year over year. That's the total company decline for sales.
Hill: I look at situations like this, and one of the questions that goes through my mind is: What, if anything, turns this around? It's hard for me to imagine things are dramatically better for this business a year from now unless they take some pretty significant steps on the cost side of things. Unless they decide "OK, we're going to start closing a lot of locations. We're going to be a smaller company, but we're going to be a better-performing company as a result of that." There's probably a little bit of brand equity there. Joseph A. Bank makes decent clothes. They just, for whatever reason, choose to give away a lot of them if you buy any of them.
And it certainly doesn't help matters -- and this is not a direct competitor yet, but I've started seeing TV ads pop up for Amazon Wardrobe. Anytime Amazon decides to spend money on TV ads for a part of their business, that gets my attention. I suppose first and foremost, the Stitch Fixes of the world are in Amazon Wardrobe's sights. But at some point, it makes life even more challenging for Tailored Brands.
Barker: What percent of the shows that you do a year do you think feature at some point a drive-by of, "And now Amazon's getting into this business. Is that going to destroy it?"
Hill: Well, to take your question at face value...let me give two answers. One is, fewer than there used to be. I would lump Apple in that category, and Facebook. By that, I mean, there was a stretch of time in the first few years we were doing MarketFoolery where there would be reports or rumors of, "Hey, they may get into this business." And we would see stocks in a certain category drop as a result of that. So, it's one thing to be like, "We're dipping our toe in the water." At one point, Facebook had the movie The Dark Knight, you could watch The Dark Knight on Facebook. The conversation then flipped to, "Wait a minute, is Facebook going to start streaming movies? Are they going to take on Netflix and anyone else in this category?" That turned out to be a one-time test that Facebook did.
In the case of Amazon Wardrobe, this is not a test. [laughs] This is real. This is live. They're spending money to take market share from these companies.
Barker: I mean, it's just an honest question, how many. Because I know it happens a lot when I'm here, that Amazon comes up. "Is Amazon doing damage to ____?" Especially when you're talking about anything that's in the retail space, clothing now being perhaps yet another item where Amazon can do harm to people that have had a business for a long time, particularly mall-based stores.
But the key to how they get out of it, I think, is included in the report in a quote from the CEO. I'll just skip to the part that I think is relevant. The way out is in part to "create inspiring and seamless experiences in and across every channel and build brands that stand for something more than just price." I think that is an identification of the issue. When you think of, certainly, Joseph A. Bank, you just think, they're competing on price. That's the only area they're competing on. Men's Wearhouse is perhaps a little different, but still. That's an area where they can get out of the hole they've dug for themselves, perhaps.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Bill Barker owns shares of AAPL. Bill Barker is an employee of Motley Fool Asset Management, a separate, sister company of The Motley Fool, LLC. The views of Bill Barker and Motley Fool Asset Management are not the views of The Motley Fool, LLC and should not be taken as such. Chris Hill owns shares of AMZN. The Motley Fool owns shares of and recommends AMZN, AAPL, FB, NFLX, and SFIX. The Motley Fool has the following options: long January 2020 $150 calls on AAPL and short January 2020 $155 calls on AAPL. The Motley Fool has a disclosure policy.