Joseph A Banks
- 1. JOSEPH A BANKS:LBO Team 7
- 2. AGENDA Company Overview Industry Overview InvestmentThesis Top Line Growth Strong Cash Flow Management Growth Going Forward Risks Exit Strategy Competitive Advantage Valuation and Deal Industry comparison Sources & uses Financial summary downside Financial Summary Upside
- 3.
- 4. COMPANY OVERVIEW Brand Value History and Overview •“High quality tailored and casual clothing 1905: Jos. A. Bank's grandfather Charles Bank and accessories” formally establishes his clothing business •Produces all of its own merchandise except 1945: Joseph and Howard Bank buy out for shoes Hartz's interest, company renamed Joseph A. Bank 1950s:Company enters retailing at its Store Breakdown Baltimore factory then at a Washington, D.C. •473 Retail Stores, including seven outlets 1981: Bank family sells company to Quaker and 13 franchises Oat Co • 42 States and Distinct of Columbia 1986: Leveraged buyout by McKinley Investments and others 1994: Company goes public
- 5.
- 6. Historical Performance INDUSTRY OVERVIEW % Change Men’s Clothing in Rev 30 Stores in U.S. 25 20 15 10 5 Industry 0 JOSB -5 -10 -15 1998 2005 1999 2000 2001 2002 2003 2004 2006 2007 2008 2009 • JOSB has shown strong sales growth even during the recession • Most retail companies are closing stores while JOSB is opening new stores and expanding the Tuxedo Rental business • Men’s Clothing Stores industry expected revenue growth of 2.1% per year through 2014. This makes JOSB goals for growth possible
- 7. INDUSTRY OVERVIEW Industry Projections Men’s Clothing Stores Projected Sales Sales Millions Revenues 11000 10500 10000 9500 9000 8500 2007 2008 2009 2010 2011 2012 2013 2014 2015 Percentage Change in Sales 5 0 -5 -10 -15 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Industry
- 8.
- 9. INVESTMENT THESIS: TOPLINE GROWTH Strong Top Line Growth Industry Revenue Growth Rate •Doubled revenue $299.7 (2004) to $739.5 (2009) •Store growth California •Comparable Sales 8.9% up from low of 3.8% (2007) •Website
- 10. INVESTMENT THESIS: STRONGCASH FLOW EBITDA & CAPEX $160 $140 $120 $100 $80 $60 $40 EBITDA $20 CAPEX $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 JOSB has strong, stable cash flows • Strong EBITDA margin • Capital Efficiency - Only $877,000 for a new store - Strong cash flow during recession
- 11. HIGH MARGIN BUSINESS High Margin Business 20% 15% JOSB 10% MW 5% Macy's 0% 2004 2005 2006 2007 2008 2009 EBITDA Margin % JOSB has an excellent EBITDA Margin of 17.8%, 10.0% higher than the industry avg. Accomplished by: •Renegotiation of rent •Lower freight cost than competitors •Lower product cost than competitors Gross Margin increased from 57.5% in Jan 04 to 61.2% in Oct 09
- 12. INVESTMENT THESIS: OURTEAM Management Team The management team was overhauled in the Total Sales Growth beginning of 2000 and since then has posted 900 Total Revenue (in millions) mid- to high- single digit or better comp 800 700 growth in every year except 2001, consistently 600 outpacing the comp sales in retail, and gross 500 400 margins have grown by over 1400 basis points 300 200 100 0 1999 2001 2003 2005 2007 2009 2011 Comp Store Sales 12 “Our mission was to do something 10 with this kind of sleepy, mid- Atlantic company. We wanted to 8 become the leading growth 6 company in menswear because we 4 didn’t see one out there” –Neal Black, CEO 2 0 2002 2003 2004 2005 2006 2007 2008
- 13. OUR TEAM CONT’D Store Projections Internet and Catalog Growth In 2000, when new management took the helm, Jos A Bank had108 operating stores. Today they have473. By approximately 2012, they hope to have600. Catalog and Internet Stores 45 40 35 30 25 20 15 10 5 0 2004 2005 2006 2007 2008
- 14. Four Pillars ofSuccess OUR TEAM CONT’D Quality • Key to Brand Identity • “Three Levels of Luxury” • Executive • Signature • Signature Gold Inventory In-Stock • Consistent availability for customers Design Innovation • Eliminating middlemen and streamlining design process • Introducing pieces that are “wrinkle-free,” “stain resistant” Service • Sales Associates develop meaningful business relations with customers
- 15. Growth Going Forward INVESTMENT THESIS: GROWTH GOING FORWARD •With the exception of 2009, JoSB has built 40-60 new stores in the past four years while maintaining a strong EBITDA CapEx margin •Lean growth structure – Growth CapEx has been 2.7% of sales •43% of its stores are less than five years old. In a 5-year period, younger store sales growth is typically ~ 55% ( JPMorgan) •Expanding the Tuxedo Rental business, which represents 16.7% of sales for competitors (MW 10-K) •Direct Marketing segment is continually growing with an increase of 21.2% last year
- 16. Growth Going Forward INVESTMENT THESIS CONT’D • In the process of renegotiating rent contracts, which will reduce maintenance CapEx • Increase Inventory turnover from 1.51 to ~2.30 in 3 years • The increase in revenues from Tuxedo Rental sales will increase our EBITDA margin by ~2.2% because of decrease in COGS
- 17.
- 18. RISKS: RISKS ANDMITIGATING FACTORS Risks Mitigating Factors • Consumer demand • Consumer demand - Company does not have a track record of quickly - Trends in high quality men’s apparel have responding to changes in customer taste historically proceeded at one of the slowest - Largest relative inventory in the sector increases rates in the apparel industry the company’s exposure to obsolete inventory • Real estate risk • Real estate risk - Management has a solid track record of - The market is mature and already penetrated identifying high performing locations with competitive offerings - Management will be retained through an equity - Continuing to find excellent real estate locations incentive program is a significant challenge • Pricing risk • Pricing risk - Conservative assumptions in the base case - Company has engaged in heavy discounting project that there is some permanent during the recession to maintain sales volume - Customers may be conditioned to lower prices • Margin risk and reduce spend levels if prices increase again - Growth in the higher margin tuxedo business can significantly offset decreased margins from •Margin risk apparel sales - If continued use of discounts are required to maintain sales volume, gross margin will be • Supply risk impaired relative to the historical average - This risk can be addressed post closing through a disciplined supply chain diversification effort •Supply risk - Company has an unusually high supplier concentration - Supply chain disruption could cause significant business interruption
- 19.
- 20. Three Options EXIT STRATEGIES 1. Initial Public Offering - This option would help us realize a growth on our investment 2. Sponsor-to-sponsor Sale - We anticipate that this strategy would bring in multiple offers as we would have more than doubled EBITDA 3. Strategic Buyer Sale - Selling to another company that is looking to expand
- 21. COMPETITIVE ADVANTAGES Jos. A. Bank’s 4 Forces •Website -For customer use and sales associates •Branding -High level of quality in all aspects of business -Three Levels of Luxury •Innovative clothing line -Separate Collection -Wrinkle resistant and stain resistant shirts •Focus
- 22.
- 23. VALUATION Jos. A. Bank is undervalued relative to its competitors •JOSB is trading at an EV/EBITDA multiple of 5.2x compared to the industry average of 6.41x and a peer comparison ranging from 7.0x - 9.7x • Based on historical years, similar companies sold for 8.0x- 10.0x EBITDA Trading Comparables Company EV/EBITDA Jos. A. Bank 5.20x Men’s Warehouse 6.41x Nordstrom Inc 9.447x
- 24. Jos. A. Bankis undervalued relative to its competitors VALUATION •We are offering a 12-20% premium to the current stock price which is on the high end of the average valuation methods Valuation Summary Method Implied EV Range Implied Premium 52 week high/low $26.98 $55.33 (51.24)% 0.00% Trading Comps $32.90 $87.45 (40.54)% 58.05% Transaction Comps $42.06 $69.16 (23.98)% 25.00% DCF $42.20 $70.53 (23.73)% 27.47% LBO $61.97 $66.40 12.00% 20.00% Average $41.22 $69.77 (25.50)% 26.10%
- 25. ACQUISITION SOURCES ANDUSES Sources and Uses We plan to use approximately 40% equity contribution to purchase the company Acquisition Sources and Uses Sources % Total Uses Cash $191.6 15.9% Purchase Equity $1176.3 Revolver $0.0 0.0% Repay Existing Debt $0.00 Term Loan $350.0 29.1% Financing Fees $13.4 Sr. Notes $250.0 16.6% Other Fees &Expenses $15 Equity Contrib. $463.1 38.4% Total $1204.7 100.0% Total $1204.7
- 26. SOURCES AND USES Dividend Recapitalization-No More •Interest rates in the future •Stress on the company, prior to exit strategy •Higher MoM returns in year 3 and exit year
- 27. VALUATION: DOWNSIDE CASEFINANCIAL SUMMARY DC - Financial Summary
- 28. VALUATION: DOWNSIDE CASEBALANCE SHEET DC - Balance Sheet
- 29. VALUATION: DOWNSIDE CASEINCOME STATEMENT DC - Income Statement
- 30. VALUATION: DOWNSIDE CASERETURNS ANALYSIS Downside Case returns a 11% IRR with a five-year exit
- 31. VALUATION: BASE CASEFINANCIAL SUMMARY BC - Financial Summary
- 32. VALUATION: BASE CASEBALANCE SHEET BC - Balance Sheet
- 33. VALUATION: BASE CASEINCOME STATEMENT BC - Income Statement
- 34. VALUATION: BASE CASERETURNS ANALYSIS Base Case returns a 24.5% IRR with a five-year exit •DCF Valuation suggests that JoSB is currently undervalued •Estimates of our base case were pulled from analyst reports and analysts themselves •We are offering a 12% premium and are willing to go to a 20% premium •By adding % leverage to the JoSB balance sheet the comp • Great offer since stock price is at the highest it has been since inception
- 35. JOSEPH A BANKS:Q&A Team 7