What happens when the promotions you've run for years stop working? JoS. A. Bank Clothiers, Inc. (JOSB) warned in January that fiscal 2012 net income would be 20% less than the year before and blamed, in part, poor promotions. Fiscal 2013 estimates have been cut which has pushed the stock to a Zacks Rank #5 (Strong Sell).
JoS. A. Bank is best known for its infamous "Buy 1 suit get 7 suits free" promotion which leave you asking "how DOES it make money off of that?" The men's retailer has run catchy promotions for years but now it seems to be catching up with the company.
On Jan 25, in an earnings warning, the company said its holiday promotions didn't work as well. It stated, "historically, we have had strength with these types of items, but our customers (specifically at our stores) didn't respond as well to our promotional offers as they had in the past."
After awhile, the consumer seems to become immune to the discounts. 30% off used to be good and then stores had to use 40% off. Recently it seems only 50% will make them open their wallets. When a retailer has to keep upping the ante with greater and greater discounts, it's not a good sign.
2013 Estimates Tumble
JoS. A. Bank has actually yet to report fiscal fourth quarter 2012 results or to comment further on its earnings warning that it gave nearly 2 months ago. It's scheduled to report results on Mar 27. Its track record of beating the Zacks Consensus isn't good. It has missed 3 out of the last 4 times.
Obviously, the analysts have been lowering estimates ahead of the report due to the earnings warning. The fourth quarter estimate has dropped to $1.35 from $1.76 in the last 60 days.
Earnings are now expected to fall 4.5% in fiscal 2012. For now, coming off a poor 2012, analysts still see 10% earnings growth in fiscal 2013. But analysts have been lowering 2013's estimates since the earnings warning as well.
No Rally For Shares In 2013
Unlike most of the stock market, shares of JoS. A. Bank haven't participated in the 2013 rally. They were crushed by the earnings warning and have struggled to do much since.
Investors are staying away from this one ahead of the earnings report.
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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.