Long Idea: Tailored Brands Bonds And Equity

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

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: 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 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

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