Long Idea: Tailored Brands Bonds And Equity

Tailored Brands Inc (NYSE: TLRDstock 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:

Tailored Brands

 

  • 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

Tailored Brands

 

  • 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
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Disclosure: Currently long equity and bonds but may be closing those positions as they both appreciated in price.See the  more

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