TLRD: A Defensible Long-Term Holding In The Retail Sector Not Named Amazon

Tailored Brands (TLRD), the retail company that is the product of the merger of Men's Wearhouse and Joseph A. Bank, has survived the year just past after the realization that its merger was a significant act of capital destruction. As a long-term shareholder, I rationalized staying in the name, by thinking that, at minimum, the merger removed an irrational and destructive actor in Joseph A. Bank. However, now that the smoke has cleared, I believe TLRD is one of the few retail names that has the potential to create value in the face of the "Cyber-Merchant of Death"--Amazon (AMZN). 

TLRD's entree into its target market--largely millennial, white-collar men--is its tuxedo rental business, which is being rolled out into hundreds of Macy's Stores (M) in the store-within-a-store format. This presents a unique opportunity for long-term customer acquisition by educating tuxedo renters to the fit and style options associated with formal wear and potentially business attire. Educating customers on their suit sizes and various styles and fashion trends has the potential to create a relationship and a purchase activity that mitigates the potential for commoditization on which Amazon thrives. The act of coming into the store, selecting a suit, and conducting on-site alterations is something that Amazon's business model currently cannot accommodate. Additionally, the demographic tidal wave of Millennials entering the workforce offers the potential for a significant business opportunity.

Secondly, I believe TLRD's business is among the least affected by the potential for a border adjustment tax. The Joseph Abboud line of apparel and custom suits advertises the fact that its product is made in America. This line is growing fast and is among its highest margin product offerings.

Finally, prior to the Joseph Bank debacle, TLRD was able to earn $2.55 a share in FY2013. The financial crisis of 2008-09 drove most of its direct competitors into bankruptcy (e.g. Syms, Filene's Basement, etc.), and they removed another in Joseph Bank, albeit at great expense. If the economy is able to generate 3% growth on an annual basis, this stock is well positioned to meaningfully exceed its 2013 EPS peak during the 2018 fiscal year, which would make purchasing the stock at current levels quite attractive.

I have been long the stock for more than two years and I intend to remain long for the forseeable future.

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Wendell Brown 5 years ago Member's comment

With the sorry state of Macy's these days, closing stores, poor earnings, maybe up for sale, doesn't seem like 'getting into Macy's' is much of an advantage...what am I missing?

Charles LaPorta 5 years ago Author's comment

To the extent that Macy's has more aggregate foot traffic than TLRD, it is a net positive for their tuxedo rental business, which is their Macy's offering. It's a great platform to introduce customers to your offering. As I stated, AMZN is not getting into the tuxedo rental business, so I think it is a defensible business, just like tailored clothing is a defensible niche against the AMZN onslaught.