Tailored Brands – A poorly fitting valuation
Tailored Brands was formed in 2016 as a holding company for Men’s Warehouse, which was previously public. The Company operates 1,400 stores across the US and Canada. 90% of their sales come from the US.
Tailored Brands, ticker $TLRD, is a North American Holdings company. The company owns and operates various men’s formal wear and clothing retail locations. Under the Tailored Brands umbrella are familiar names such as; Men’s Wearhouse, Moores, Jos. A Bank Clothiers, and K&G. Tailored Brands also supplies uniforms via it’s corporate apparel division.
An Unusual Valuation
What intrigues us about Tailored Brands has nothing to do with their actual operation of their businesses, while they are on of the largest mens formal wear retailer in North America, nothing stands out about the business itself. Its when you look into their numbers that the business starts to shine.
TLRD, as of writing, has a market capitalization of 1.26 Billion. Their current LTM values for revenue are, 3.31 billion. That is more than double their market cap. In fact, their adjusted gross profit is 1.39 billion, still more than their valuation. Their adjusted revenues still exceed their Enterprise Valuation of 2.41 billion.
TLRD’s LTM adjusted net income was reported at 116.5 million USD, quite a far cry from their gross profit of 1.39 billion. This can be attributed to their high operating expenses, 1.52 billion which was attributed to selling, as well as general & administrative expenses.
TLRD’s net income while low, has been growing rapidly. In 2018 their adjusted net income grew 19.23% from 86.1 million the previous year to 106.6 million. Their margins also grew from 2.5% to 3.2%. This significant growth is projected to continue. Their 2019 estimated adjusted net income is projected at: 137.5million, with a profit margin of 4.2%.
Finally, on top of TLRD trading at a very low revenue to market cap ratio, their recent share performance has placed them at a discount. Their most recent earnings report beat analyst expectations however decreasing profitability at Jos. A. Bank locations sent the stock down 15.6% from its close the previous day of $33.45. The stock has since bottomed out and returned to an upward trend. It’s Up $5.29/share since August 1st.
What we think
With another $8.26/share to go before recovering it’s losses from it’s last earnings disappointment, this company could be a very profitable trade so long as earning expectations are at least met. With it’s low market cap considering revenue, and solid P/E ratio at 10.9x, TLRD is an undervalued gem for those continuing to invest in retail businesses.