Jos. A. Bank sales plunge after end of 'buy one, get three free' promotion

Sales at Jos. A. Bank plunged in the three-month period ending in September as the Hampstead-based chain of men's apparel stores dropped its well-known "buy one, get three free" promotion.

Sales fell 14.6 percent as Houston-based Men's Wearhouse, which acquired Bank for $1.8 billion last year, phased out what it called in a statement this week an "unsustainable promotional strategy."


Men's Wearhouse took over Bank after a months-long of battle that began when Bank made an offer to buy Men's Wearhouse.

Men's Wearhouse's stock tanked Friday, declining more than 43 percent to $22.68 a share, after it released its statement. The company is scheduled to release third-quarter earnings in December.


Men's Wearhouse blamed the sales decline on the end of Bank's three-for-one and four-for-one offers. It slowly cut down the number of days in which the promotions were offered and advertised its final sale in October.

"We are obviously disappointed by the third-quarter results at Jos. A. Bank," Doug Ewert, Men's Wearhouse chief executive officer, said in a statement. "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.

"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."

Still, Ewert said the company did not plan to change course.

"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," he said.

Sales in the third quarter at Men's Wearhouse were up 5.3 percent, the company reported.

The company is now forecasting a further drop of 20 percent to 25 percent in sales in the fourth quarter at Bank and a decline in the number of items sold.

Analysts were glum on receiving the news. Goldman Sachs revised its outlook from buy to neutral and said that the decline in sales at Bank was not offset by any savings generated from the merger.

While the stock fell significantly on the news, making it a cheaper buy for investors, "our confidence in its sustainability is now very low," Goldman Sachs' analysts wrote in a research note.

"Moreover, with the elimination of 'buy 1 get 3 free' now underway, we see even more uncertainty as management attempts to reengineer the business model."

Steven Isberg, an associate professor of finance at the University of Baltimore's Merrick School of Business, called the drop in sales "not surprising," saying the economy is still not strong and many customers at men's-only retailers are still looking primarily for deals.

"That's an extremely competitive industry," Isberg said. "If you're going to raise your prices in an industry like that, people are going to look elsewhere."


If the trend continued, Isberg said, Men's Wearhouse could decide to eliminate the Bank brand and roll it into the existing Men's Wearhouse brand.

The Bank promotion means that customers are more inclined to buy more ties, shirts and other accessories to match the number of suits they are buying, Isberg said. Without it, he said, customers will buy fewer items overall.

"The markups on that stuff is a lot higher, and that's how they make a lot of their profit," Isberg said of the accessories. "You're not going to go in and spend $300 on a new suit and not look at the ties."

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