Interview with Jos A. Banks CEO

Gentlemen,

an interview with Banks CEO -- Banks was of course a trad shop in the once trad capital of Baltimore -- a very trad town (cf. the film "Diner").

Although like Brooks, they've slipped, perhaps they still fly the natural shouldered flag here and there....


THE WALL STREET TRANSCRIPT CORPORATION. Wall Street Transcript. New York: Mar 14, 2005. pg. 1

This is a TWST Interview with Robert Wildrick, CEO of Jos. A. Bank Clothiers, Inc.

TWST: What is Jos. A. Bank Clothiers?

Mr. Wildrick: Jos. A. Bank Clothiers is 100 years old this year. It started with a tailor named Joseph Bank, who then began to develop factories and sell goods factory to you for around 50 years. He sold his business to Quaker Oats in the 1980s, and the Joseph Bank family was then out of the business. Quaker Oats took over and began to expand the company and decided that they would rather be in the food business than in the apparel business. They sold it in the late 1980s to some leverage buyout people who owned other retailers. In 1989, the business was struggling very seriously and on the brink of Chapter 11, and the bondholders brought in a turnaround man who worked very hard to stabilize the business until 1994. At the end of 1994, the business was stabilized and went public. However, very little happened with the business from 1994 through 1999. In fact, the market cap, which today is over $400 million, averaged in those years about $29 million. So the market cap has grown dramatically. In 1999, the board decided they needed to bring in some very experienced retail people and develop a strategic plan for the growth of the company or the sale of the company. We explored both pieces of that, and actively put plans in place to do both. But in the end we decided to grow the company and not sell it. We were able to recruit a very high-talent management team, put a very significant growth plan together, and the company, without increasing debt, in the last five years once we report this year, will have made more than $60 million in profit, will have increased the market cap by about one-third of $1 billion and will have gone from approximately 100 stores to close to 300 with a long-term plan in place over the next three years getting the company to 500 stores. The way this occurred is the new management team came in and immediately went to work on quality and put in some of the best quality control systems in the business, number one. Number two, the prior management also had begun to buy from a huge number of middlemen. The new management team went back to our design and manufacturing base, thereby cutting out the middlemen and kept the profit for shareholders. We also took a portion of the savings and re-invested it into product quality and the infrastructure to expand the company. So the company became immensely profitable and really has been the fastest growing menswear company in the United States for the past five years.

TWST: What's the agenda at this point? What are your priorities for the next 12 to 24 months? What would make that time frame a success?

Mr. Wildrick: For the next 12 months, the plans are to open 60 to 75 more stores. We have already approved over 45.

So I think 75 is practical for this year, but we aren't certain at this point. So we are saying 60 to 75. If we achieve the 75, that will take the base at the end of 2005 up to approximately 345 stores. The following year we would do the same thing. So in terms of store growth, we will have significant store growth for the next two to three years, and we believe that our margins still have room to improve. We want to continue to show double- digit profit growth certainly for the next two to three years. Assuming we do what the analysts believe we will do (and we have no reason to think we won't at this time), we will have averaged over a 75% per year increase in profit. Now, that is skewed because we had one year that we had almost a 200% growth in profit. However, we have had no year with less than a 30% growth in profit. For the year that just ended we will record the profit growth over 40%. So our goal is double digit for next year as well.

TWST: What do you see as the overall retail market, and how does that economic backdrop impact what you see as your company's ability to perform?

Mr. Wildrick: I can't speak to the overall retail market totally, except I know that the closer you get to Wal-Mart, the closer your chance of defeat is because they are such a powerhouse. So we are actually going in the other direction. Our customer is an upper moderate through better customer, and they tend to be less affected by economic swings than the lower-end customer. We tend to put very good clothes on people's backs at very fair prices. So we are in a niche that seems to have great potential.

TWST: How strong financially is the company at this point? Does the capital resource have an impact on where you see your company going, particularly with the expansion plans you have?

Mr. Wildrick: In 2004, we opened 60 stores and actually decreased our debt. When the final balance sheet comes out at the end of the year, people will be amazed at how low our debt is compared to what it was at the beginning of the year. It was not high at the beginning of the year, it was very manageable, but we have taken it significantly down while opening 60 stores. So we open our stores out of free cash flow. If at any time the economy became really difficult or something happened, we could simply not open stores and pay off our debt and become very cash positive. Currently, we are taking our profits and opening stores. There will be only one menswear retailer that I'm aware of that will have more stores than we have by the end of our growth program.

TWST: Introduce us to your top-level management team and give us your assessment as far as bench strengths and skill sets.

Mr. Wildrick: The company is organized with three top managers under me. One would be Dave Ullman. He is our CFO and he has over 20 years of experience in public accounting and with a large direct mail operation, including about 10 years with our company. He handles all the financial pieces of the business along with all our data processing and information services. So anything to do with numbers as it relates to accounting or controlling inventories is under David Ullman. The second person under me is our Chief Merchandising Officer. His name is Neal Black, and he has extensive merchandising experience in The May Company, also with Saks Corporation. He handles all merchandise ' our various joint ventures around the world with our factories. Everything falls under him, from design through product manufacturing and procurement to putting the product in the stores and making sure it's visually presented properly and priced properly. The third senior officer we have is our Chief Operations Officer, and his name is Bob Hensley. Bob Hensley has had extensive experience with OfficeMax, Venture and Montgomery Ward. Hensley gets all store operations reporting to him as well as real estate and human resources. So he has the bulk of the people of the business under his command. All these people are in their late 40s to 51 years old, and they are very seasoned retail executives. Each has a few more specific officers below them ' General Merchandise Managers, Senior VPs for Marketing, Senior VPs for Catalog, Senior VPs for Internet, and things of that nature who handle the pieces of their job to a more specific nature. But we have a very deep management team that is highly skilled, and the average number of years in retailing for this management team is over 20 years.

TWST: What do you see changing in the competitive landscape? How do your strategies match up with the way you see that landscape transforming? Who should we be using, as far as analysts and investors, to form a peer group for analyzing you?

Mr. Wildrick: That's a good question, and it's one that we get asked frequently. Nobody is quite like us because we are a manufacturer- retailer. We are a brand retailer. We would be like a male version of Chicos; we benchmark against Chics. We realize it's women. It's faster turn; it's higher fashion, but we like their results because we think they are so good. We would also like to look at the results of Coach. So we benchmark against those as opposed to other men's apparel retailers because, as I said, no men's apparel retailer is growing as fast as we are. We go into a different kind of location.

We go into specialty centers whenever possible. The people who would be our co-tenants in specialty centers would be typically a Talbots, Ann Taylor, Chicos, Starbucks Coffee, Borders Books, etc. So they would be a different type than we are used to seeing. It's almost like a higher-end mall. So those are the kinds of people we tend to be around the most and where we do the best. We design our products to meet the needs of our customers. The individuals we sell to are customers who primarily earn $100,000 a year or more. About 80% own their own homes. They are primarily married, and their major hobbies are golf and travel. They are the major leader in the type of things they like to do.

TWST: What role, if any, is consolidation playing as you look around you and what role can it play as you look at some of your own growth opportunities?

Mr. Wildrick: What has happened in the menswear business is with the local mom and pop store where the father was in the menswear industry forever with a local store. For most of those, the child has not had an interest is joining the business and being the local haberdasher. But they have gone away, and we have filled a lot of that gap. That has helped us tremendously. The other thing that has helped us is that nobody else is expanding like we are as these specialty centers have opened, and that's the new phenomenon in retailing around the country. Unless they just want to have women shops and pizza parlors, they need to have somebody. Since we are the one expanding and the one willing to put out the funds, they call on us, and they give us very favorable rent because we are usually the only male store in there; all the rest are females. So we tend to get very good rent deals, and typically they pay for a large part of our building development.

TWST: What historically has been the shareholder base with the company? Has that base now undergone any changes or transitions?

Mr. Wildrick: It has. It's primarily institutional in its nature; about 78% of the shareholders are institutional if you take out the insiders who have stock. The other pieces are primarily through retail brokers. The institutions have generally treated us pretty favorably because when we started this process in 1999, the stock had been as low as 2.5, and if you adjust for the splits, the stock has gone to over 55. We still have a relatively low p/e for a growth company like we are. So we think there is tremendous room for growth in the stock, assuming we continue to perform in terms of being continuously more profitable.

TWST: Are there any misperceptions or differences between what analysts and investors see as your strategies and goals and what you see as the reality?

Mr. Wildrick: The biggest one is how we analyze a company, which really has very few, if any, peers.

If you were to look at Ralph Lauren, they do a huge amount of business through a secondary source like department stores as an example. They have a huge outlet store business, and we don't really have one. Actually, we have six outlet stores, but as a percent of our business, it's very, very low; it's not a big piece of the business like theirs. Instead we chose to go after the Internet catalog business, and that's about 10% of our business and has been a very successful 10% of our business. The combined Internet catalog is very profitable. So it's hard to compare. If you were to take a Brooks Brothers, another person we share customers with, they are primarily in big cities and big stores. We tend to be all over because our store format is only 4,500 square feet. So we don't need to do the big level of volume that others need to do. We just need to have a lot of stores in very convenient locations, and that's our strategy. So it's difficult to compare, and of course, Brooks Brothers is private and doesn't give out their figures. So it's difficult to compare there. Then, of course, there is Men's Wearhouse, which is the biggest of all. But there are different customers. As we perceive it, they pretty much stop at $199 for a suit, and we kind of take it from there up. So there are different operations. But we study all those operations, and we try to learn as much as we can from them because all three of those are very successful and very good operations. So if we can take the best ideas they all have and apply them in terms of management of our company, we will just become better ourselves. I don't see them as competitors so much as I see them as mentors.

TWST: What compels investors to review Jos. A. Bank Clothiers and include it in their current portfolios and in their longer-term investment strategies?

Mr. Wildrick: We are one of the only companies that I am aware of that five years ago in 1999 actually published our strategic plan. In other words, we obligated ourselves to do what we said we were going to do, and then we beat it. We said we can earn over $2 a share in five years, and in fact, we report this year, based on what the analysts and we feel we are going to do, on a non-split adjusted basis of over $3 a share. People who got on the bandwagon early when we were $3 have stock today which is valued at about $55 a share on a pre-split basis. In the past two or three years at least, we have been in the top 2% of all stock accretions. We are in the top of all stocks. For the past several years, we have been in the top tier of profit growth of all publicly listed companies. We continue to perform at that level.

Our products, because of our fanaticism toward quality, continue to get better, and our customer base continues to get bigger. A typical new store does a little less than $1 million. Every time we open a new store, that's a talking signboard in an area that maybe we haven't been before. So we are opening up territories like California where we had no stores two years ago; now we have 12. By the end of this year, we should have 30, and then in another year, we should have 50. So we are moving across the country, and we are back filling toward the East Coast at the same time. We will open our first store in Arizona by the middle of summer, and maybe we will have two or three by the end of fall and so on. The company has new stores that have been very successful, beating our internal plans. So in terms of store growth, we are about halfway there. I think there are two or three more years of significant growth opportunities for this company, assuming we do nothing else. We may, of course, do something else because we have such a strong management team. As we begin to wind down on opening stores, we will be able to so some other things ' perhaps create a new concept, maybe acquire another company. But it has been a very good investment for people who bought it. We don't want to run the company for the sake of Wall Street or fly- by-night ideas that may occur. We want to be an investment grade stock, something you can buy, put under your pillow and know you can send your kid to school on the profits that you have made on it. That's the way we look at it. We don't want to be a quick buck company. We want to keep blocking and tackling and performing year after year. We are very cautious in terms of our debt. Our interest to borrowings coverage is over 20 times. So we have plenty of capacity. We have a $125 million loan potential that we hardly ever get into for more than $40 million at peak. Generally, we are into the bank for much less than $40 million. They would like us to borrow more money. So we have great borrowing capacity, which we haven't used, and it's just a good solid company with a very enthusiastic management team, and we have a young group of trainees coming along and junior executives coming along. So we think this is a good stock to own on a portfolio for the long term. We are not going to do anything radical. We are not going to do anything for ego reasons. Any business decisions that we make, as they may have to do with acquisition or a new business, will be well thought out and done strictly based on, 'Is it very low in risk, and can it provide a good reward for our stockholders if we execute?'

TWST: Thank you. (DWA)

ROBERT WILDRICK

CEO