J. Bank plays it close to the vest

The Baltimore Sun

Jos. A. Bank Clothiers stock has fallen by nearly half since last spring. The menswear chain is defending itself against two shareholder lawsuits. Analysts worry it might get squeezed between a falling economy and rising costs. "Short sellers," who will profit if the shares fall further, are betting on it.

How does the company respond? With a passive-aggressive pout guaranteed to egg on the skeptics.

Bosses Robert N. Wildrick and David E. Ullman don't take questions on conference calls with stock analysts. Apparently, they don't talk to journalists anymore, either - at least not this one.

Hey, Joe: "Fair disclosure" doesn't mean being scrupulously evenhanded by telling almost nothing to nobody. You're hurting yourself as well as investors. You might even have a good story to tell.

The Hampstead company's profits rose 16 percent for the year through January for its seventh annual record in a row. CEO Wildrick has done what Bank's 1990s management couldn't: get men to start buying suits again, take the chain national and increase profits proportionately.

And he did it without hocking the company to the rafters. It had zero long-term debt as of Feb. 2.

But analysts worry about Bank's rising inventory and the endgame of its aggressive discounting and advertising strategy. It lived for years on cheap overseas production, but costs are rising for both labor and materials. Meanwhile, the U.S. economy is decelerating, and men are the first to stop buying clothes in a downturn.

Bank's inventories rose 13 percent from January 2007 to January 2008 - faster than store growth and slower than sales growth. That suggests the company's "Signature" suits aren't exactly pulling themselves off the racks and walking to the cash register. No "just in time" inventory at this company.

Wildrick's explanation on a conference call with analysts - that big inventories help in a downturn by giving customers better selection - doesn't come from any retail textbook I've heard of. Fear of surplus inventory keeps merchants awake at night.

It's not as bad in menswear as in women's, where the fashion cycle turns $500 dresses into Goodwill fodder in a matter of months. But it ain't positive.

Bank is already known for its frequent and deep discounts. (When he was New York's attorney general, Eliot Spitzer said Bank's "sales" weren't really sales because the goods were almost always marked down.) If it has to further cut prices and boost advertising to move merchandise in a recession, profits will get creamed.

"I'd like to understand their strategy of accelerating markdowns and the ability to maintain that strategy," says Richard E. Jaffe, who follows the company for Stifel Nicolaus. "'You're challenged,'" he would have told the Bank executives. "'Then how do you do it?' That's a question I don't have the answer to."

He's not likely to get one. On this month's conference call, executives spent 3 minutes on legal boilerplate and 12 minutes reading prepared statements. Then they hung up. Hu Jintao tolerated about the same amount of dialogue at China's 17th Party Congress.

Battening the hatches is never seen as a good sign for a public company. People remember what happened after Enron started restricting communication. On a conference call, CEO Jeffrey Skilling swore at an analyst who was trying to understand some complex accounting entries. Not long after that, the place was bankrupt and Skilling was in prison.

Bank eliminated its question-and-answer sessions a couple years ago after a contentious call in which Jaffe pressed the company on inventories.

"I told you what happened," Wildrick replied. "I think you're wasting my time and yours on this."

Analysts. Can't live with 'em. But what's the point of a conference call with no conferring?

Ullman, Bank's executive vice president and chief financial officer, didn't return my calls.

"We try to be as complete as possible in our filings and are concerned that answers in Q&A; sessions can too easily be misconstrued," Wildrick said in this month's session, apparently in response to somebody who previously questioned the policy.

But ducking questions can be misconstrued, too. Bank booked healthy sales for February and March. Maybe it really is well positioned. Maybe the shares are undervalued. Is there a better story to tell?

It might not convince naysayers by talking to them. But it surely won't convince them by avoiding them.


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