Tailored Brands Inc (NYSE:TLRD) stockand bond analysis by Michael Roberson ofStrategy Chain.
Q1 2020 hedge fund letters, conferences and more
Tailored Brands: Long Idea
The idea in a nutshell:
- 7% 2022 Bonds at 26
- 27% current yield
- 3-4x upside potential
- Equity below 1x LFCF
- Likely to break leverage and fixed charge coverage covenants, but (in my view / looking to confirm this thinking) likely to be granted a waiver
- Likely to be able to pay interest through the COVID-19squeeze
- Currently at $0.90/sh down from $8.00/sh a year ago and $4.00/sh immediately before COVID-19
- Possibility of a buyout bid (Sycamore or George Zimmer)
Thesis
- Tailored Brands is priced for bankruptcy but is unlikely to file
- Financials suggest TLRD can operate for 6 months with no revenue
- P/E: 1.8x current; 0.6x normalized
- P/LFCF: 1.0x current; 0.5x normalized
- 2022 bonds at 26
- At under $50m in market capitalization, there is likely indiscriminate selling
- Further exacerbated by recent sales by Michael Burry, who trimmed his position from 8% to below 5% of shares outstanding
- TLRD is a classic Joel Greenblatt “stub stock” play
- $50m market capitalization
- $1,413m debt
Business Overview:
- Brands: Men’s Wearhouse, Jos. A. Bank, Moores, and K&G
- Products & Services
- Sell men’s suits, formalwear, and businesscasual (79% of GP)
- Rent tuxedos (21% of GP)
- Offer tailoring and other services (<1% of GP)
- Distribution
- 1,450 stores in the US and Canada
- Factory in Massachusetts
- eCommerce operations
Segment Overview:
- Gross Margin Focus
- Roughly 78% Retail
- Roughly 20% Rental (high margin business)
- Alteration is negligible because of its low margins
Tailored Brands Net Sales Details
- Segment Details
- 45% Men’s Tailored Clothing
- 33% Men’s Non Tailored Clothing
- 14% Rental (but this business is high margin)
- Brands
- Dominated by Men’s Wearhouse and Jos. A. Bank
- Geography
- Mainly USA
- Moores is the Canadian portion
Tailored Brands: Mild Seasonality (Unlike Most Retail)
- Q2 and Q3 contribute about 53% of gross margin
- Q2 (May Jul): Prom Season
- Q3 (Aug Oct): Wedding Season
- Q4 is the seasonal low point
- Most of the seasonality has to do with rental products, which are in high demand during Prom and Wedding seasons
- 2020’s Prom and Wedding seasons are likely to be hurt by COVID 19
- But, as we can see at left, Tailored Brands' Q2 and Q3 don’t dominate the year’s results like you might expect from a typical retailer’s Q4
Disclosure: Currently long equity and bonds but may be closing those positions as they both appreciated in price.
See the full report here.
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