Stock in Jos. A. Bank Clothiers Inc. took a drubbing yesterday, plunging by 22 percent one day after the Hampstead-based suitmaker reported disappointing quarterly profits and major adjustments in its merchandise strategy.
Bank's stock closed at $4.50 a share, down from $5.75 a day earlier and a steep 55 percent below the $10 that Bank charged shareholders in an initial public offering in May.
In part, the decline reflects Bank's poor results for the three months ended Oct. 29. It earned just $100,000, despite boosting sales by 9.9 percent to $45.6 million.
"The bottom line is, we got nailed in the third quarter," said Timothy F. Finley, Bank's chairman and chief executive.
To a greater degree, it also demonstrated investors' fears about the future of Bank's suits and sport coats in an age when denim and cotton are replacing wool and silk as workplace wear, analysts said.
But the plummet has been deep enough that it raises the questions loved by bottom-fishers and bargain-hunters everywhere: Has Wall Street overreacted? Is there money to be made here?
At $4.50 a share, Bank has a market value of $30 million, roughly two-thirds of its net worth on its balance sheet. At $4.50 a share, the company is selling for just eight times 1993 net earnings of 55 cents a share, or $3.77 million.
Wall Street doesn't especially like the apparel business these days. Even so, most clothiers command stock prices that are well over book value, with price/earnings ratios of anywhere from 10 to 30.
Of course, Bank isn't on track to make $3.77 million this year. Through Oct. 29, the suitmaker has earned only 12 cents for each of its 6.8 million shares -- $800,000. Even though the fiscal year's final three months are usually Bank's best, the company said Wednesday that profits from the current quarter won't equal last year's.
The issue now for investors is whether Bank will recover, how fast and how well.
The few financial analysts who follow Bank are divided. Catherine K. DePuy, who covers the company for Smith Barney Shearson Inc. in New York, lowered her rating yesterday to "neutral" from "outperform." Ms. DePuy declined to comment, citing Smith Barney's role in underwriting Bank's stock offering.
Charles Ronson, publisher of the IPO Value Monitor newsletter, believes Bank "is a cheap stock." But he's not buying. "A cheap stock doesn't necessarily mean a roaring buy," Mr. Ronson said. "It's hard to tell with a retailer . . . You've got to be careful when it's that cheap. I have seen stocks bounce back and double. I have seen stocks collapse and stay there."
Donaldson, Lufkin & Jenrette Securities Corp., another New York investment house that helped Bank issue public stock, rates the stock a buy. Two DLJ analysts who follow Bank did not return phone calls yesterday.
Several factors are hurting Bank profits this year. The chain has been spending money to open new stores, including an especially expensive one in Manhattan.
Apparel sales have been lackluster for many companies, analysts have said, as consumers took advantage of low interest rates to buy homes and cars instead of clothes. Men's suit sales have been especially sluggish, though, as workplaces go increasingly casual.
Bank also said that it didn't promote its clothes enough in September and October.
To the extent that the company can fix those problems, its stock might be a good investment, Mr. Ronson said.
For one thing, November sales results improved after Bank increased advertising and discounts, said Mr. Finley, who is widely respected in the financial community.
Bank also said it will sharply increase its stock of more-casual work-wear such as sport coats and slacks. But the switch will take a year, given long lead times among apparel manufacturers. And since it strays from Bank's historic franchise of traditional careerwear, it could backfire.
At least some investors are confident that Bank won't end up in bankruptcy court. A lending syndicate that includes Wells Fargo & Co. recently increased Bank's credit line from $32.5 million to $40 million.