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Tailored Brands Faces Bankruptcy Speculation—Here’s Why

The parent company to Men’s Wearhouse and Jos. A. Bank is the latest subject of bankruptcy talk, suffering beneath a billion-dollar debt load, painful store closures and consumers swapping suits for sweats.

As of June 5, Tailored Brands Inc. has reopened 634 of its more than 1,400 stores, though comparable sales have been down at its brands where brick and mortar has been open for at least one week. Comps at Men’s Wearhouse fell 65 percent, while Jos. A. Bank tumbled 78 percent and K&G saw comps decline 40 percent. Second quarter-to-date e-commerce sales, including rental services, have been down about 32 percent, the company said, as consumers stay home and events like weddings and graduations have been cancelled, leaving little demand for dress-up attire.

However, Tailored’s business was in a better position prior to the pandemic, with retail comps up 2.4 percent and “all brands positive” in February, it said.

Tailored has done what it can to manage liquidity amid the recent chaos, gaining $13.4 million from the sale of a distribution center and owned store. In January, it offloaded the Joseph Abboud brand to brand management startup WHP Global for $115 million after acquiring the outfitter in 2013 for $97.3 million.

But it was Tailored’s 2014 acquisition of Jos. A. Bank Clothiers Inc. for $1.8 billion that ballooned its debt load to more than $2 billion at the time. It’s now carrying $1.4 billion, thanks to CEO Dinesh Lathi’s efforts to managing the company’s cash and rein in its outflows, but the coronavirus pandemic has severely hampered those efforts—and sales. Plus, Tailored adopted a limited shareholder rights plan in the early days of the pandemic. Dubbed a “poison pill,” the maneuver helps companies (usually whose share prices have recently plummeted) thwart hostile takeovers and at the very least compels so-called activist investors to engage with a corporate board in the hopes of reaching favorable terms. Shares of Tailored Brands have been trading in the $1.25 range on Thursday morning, with a 52-week high of $7.24 a share and the low at 89 cents.

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Throw in the steamrolling trend toward casualization, especially as quarantined consumers favor ‘above-the-keyboard’ styles that leave little appetite for the office-staple attire of yore, and Tailored the faces the seemingly insurmountable task of reasserting its relevance.

Still, Lathi sees opportunities for a comeback.

“The casualization, e-commerce and digital marketing trends we identified in our business have accelerated due to the COVID-19 pandemic and we are pleased to have already made progress transforming our business to address these trends,” he said. “While it’s still early and the operating environment remains highly uncertain, we anticipate sales will rebuild gradually during the remainder of the year. We are planning the business conservatively and will continue to operate with discipline to preserve our liquidity as we navigate this uncertain environment.”

However, B. Riley FBR analyst Susan Anderson on Wednesday dropped coverage of Tailored Brands, citing a reallocation of resources and flagging bankruptcy speculation.

For preliminary first quarter results for the three months ended May 2, the company estimated that net sales would be down 60 percent to $286.7 million, reflecting the impact of the COVID-19 pandemic. Gross margin was 10.4 percent. Cash and cash equivalents at the end of the quarter totaled $244.2 million, reflecting an increase of $231.2 million following the company’s decision to draw down $310.0 million from its asset-based loan. Proceeds from the sale of Abboud were placed into a restricted cash account per the provisions of its term loan, for use primarily for reimbursement of capital expenditures and rental product purchases. Tailored said the balance in the restricted account was $94.5 million at the end of the first quarter.

The company noted that its asset-based lending facility has certain provisions that could impose reserves against its borrowing base. “The imposition of reserves and reduction in our borrowing base may further limit the company’s liquidity, potentially materially,” the company said.

Tailored also said it expects to benefit from the Coronavirus aid Relief and Economic Security (CARES) Act through net operating loss (NOL) carrybacks, increased deductions such as those associated with interest expense and other benefits including payroll tax credits. The NOL carryback allows the company to apply a net operating loss to a previous year’s tax return.