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Bear Of The Day: Tailored Brands (TLRD)

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Tailored Brands looks to be sewing itself right into Chapter 11 bankruptcy. This suit corporation has been seeing a declining topline the past 4 years and is now beginning to toe the line of profitability. Analysts are progressively pessimistic about TLRD and have been dropping their EPS estimates and pushing this stock into a Zacks Rank #5.

Tailored Brands include Men’s Wearhouse, Jos. A. Bank, K&G, and Moores. These stores can be found across the US & Canada at over 1,400 locations. Unfortunately, store count has been declining fast, with total store count falling almost 20% since the end of 2014. Consumers just aren’t buying the suits and tuxedos that they used to.

Since 2016 Tailored Brands has been experiencing a declining topline since 2016, represented by brand below. Sell-side analysts are estimating that in fiscal year 2020 TLRD will experience its most significant annual sales decline since the company’s inception (Q4 earnings expected 3/11). This decline is expected to continue into the foreseeable future. TLRD’s sales decline, coupled with margin cuts, is having a devastating impact on the firm’s bottom line.

I am concerned about the liquidity of Tailored Brands, with its cash on hand covering only 3% of the company’s current liabilities. Debt has progressively risen to unsustainable levels, as TLRD requires more capital to maintain its current operations. Debt is easy to come by in this economic environment, but once the credit markets dry up Tailored brand will be in trouble.

Free-cash-flows are just barely staying above water. It wouldn’t take much for this company to default, especially when their credit rating is already considered speculative grade.

In today’s corporate world, execs are wearing fewer suits and leaning towards more progressive clothing as they adapt to the liberalism of the up and coming generations. You are seeing a decline in suits and an increase in athleisure attire in the office, a trend that would have Don Draper fuming.

Take Away

The inclination toward casual work attire combined with Tailored Brands inability to adapt to the evolving consumer has sent this company to the brink of bankruptcy. This stock has been toxic for some time now, and unless significant systemic changes are made, its toxicity will continue. Stay away from shares of TLRD.

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