Long Idea: Tailored Brands Bonds And Equity

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Tailored Brands Inc (NYSE:TLRD) stock and bond analysis by Michael Roberson of Strategy Chain.

 

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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-19 squeeze
    • 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: 2. 7 x current; 1.0x normalized
    • P/LFCF: 1.6x current; 0.8x normalized
    • 2022 bonds at 28
  • At under $70m 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
    • $70m market capitalization
    • $1,413m debt
    • $439m cash
    • $1,041m TEV

Business Overview:

  • Brands: Men’s Wearhouse, Jos. A. Bank, Moores, and K&G
  • Products & Services
    • Sell men’s suits, formalwear, and business casual (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
    • Management doesn’t break out revenue by channel

Segment Overview:

Tailored Brands

  • 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

Tailored Brands

  • Segment Details
    • 45% Men’s Tailored Clothing
    • 34% Men’s Non Tailored Clothing
    • 13% Rental (but this business is high margin)
    • Men’s Wearhouse & Jos. A. Bank are 80%+ of Net Sales
    • Dominantly US business; Moores is the Canadian portion

Tailored Brands: Mild Seasonality (Unlike Most Retail)

Tailored Brands

  • 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.

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About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver

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