Uniform Controversy Just Latest Headache for Tailored Brands

June 28, 2017

By Taylor Cromwell | Bloomberg

American Airlines Group Inc.’s high-profile breakup with uniform supplier Tailored Brands Inc. is just the latest black eye for an apparel company that has lost more than half its value this year.

Tailored Brands, which owns Men’s Wearhouse, Jos. A. Bank and Twin Hill, has suffered a string of setbacks, including a failed partnership with Macy’s Inc. and difficult integration between its two men’s suits chains. Though the uniform business represents a small percentage of sales, the airline controversy has left some investors and analysts wondering when the company is going to catch a break.

“It seems there’s more and more uncertainty every fiscal year,” said retail analyst Burt Flickinger, managing director of Strategic Resource Group.

The 44-year-old clothing seller, which switched its corporate name from Men’s Wearhouse to Tailored Brands last year, is challenged on several fronts. Sluggish foot traffic is hurting retail sales, and a more casual workplace has given men less of a reason to buy a new suit.

Then there are the problems unique to Tailored Brands. Its Jos. A. Bank chain has suffered a painful shift away from its legendary discounts (“Buy One Suit, Get Three Suits Free”), which were once so pervasive they were pilloried in a “Saturday Night Live” skit.

The stock has tumbled 59 percent this year through Tuesday’s close, putting the shares at their lowest level since 2009. It was trading at $10.64 on Wednesday, compared with a high of $65.81 in June 2015.

At Twin Hill, Tailored Brands’ uniform division, the problems stemmed from complaints by flight attendants who were outfitted by the company. According to the employees’ union, more than 3,500 American Airlines workers experienced rashes, wheezing and other reactions from the uniforms. Several rounds of testing, however, were unable to find any dangerous levels of chemicals in the garments.

“We have never been presented with any evidence linking the uniforms to the symptoms reported,” the company said in a statement.

Still, Twin Hill said last week that it made a mutual decision to end the contract, citing the “reputational risk” of sticking with the deal. Twin Hill says it stands by the quality of its products, which prevailed in court during a similar case with Alaska Airlines.

The Twin Hill business is a small fraction of Tailored Brand’s $3.4 billion in annual revenue, but the episode extends a stretch of turmoil that began before the merger of Jos. A. Bank and Men’s Wearhouse in 2014.

The year prior to that deal, Men’s Wearhouse fired its founder and chairman George Zimmer, who had expressed concerns about the direction the company was heading. The bearded executive also served as the longtime pitchman for the business, best known for saying, “You’re going to like the way you look. I guarantee it.”

‘Monumental Mistake’

His ouster was a “monumental mistake,” Flickinger said.

“Zimmer’s leadership and insight was critical,” Flickinger said, comparing the founder’s departure to “the Patriots losing Bill Belichick as head coach.”

In the wake of Zimmer’s exit, Men’s Wearhouse and Jos. A. Bank became tangled in a takeover battle, with each attempting to buy the other. Jos. A. Bank also tried to fend off a bid by forging its own deal with Eddie Bauer, but the strategy failed. Men’s Wearhouse won out and purchased its rival for about $1.8 billion.

Then came the hard part: assembling two businesses with different marketing approaches. Men’s Wearhouse had more of an everyday low-price model, with less reliance on eye-catching discounts.

When Chief Executive Officer Doug Ewert began pushing Jos. A. Bank to adopt that same strategy, many customers abandoned the chain. Same-store sales plunged 16 percent in 2015 and almost 10 percent last year.

Custom Suits

As Ewert tries to get the retailer back on track, he’s touting the benefits of customized suits and making it easier to order online.

“Our strategy is to change the way men buy suits by making custom as easy and affordable to buy as a suit off-the-rack,” he said on a conference call earlier this month.

Tailored Brands, based in Houston, declined to discuss the strategy beyond its previous comments.

The broader retail slump remains a headwind. When the company forged a pact to offer tuxedos at Macy’s in 2015, the idea was to take advantage of the department-store chain’s foot traffic. But a slowdown in that industry made it difficult for the partnership to thrive: Ewert said last month that he was winding down the deal.

David Mann, an analyst with Johnson Rice & Co., doesn’t see the American Airlines split as a big blow to the company, since the financial implications won’t be material. In a note to clients last week, he maintained a buy rating on Tailored Brands.

But the question now is, what’s next? Flickinger believes a turnaround may not take hold without a management shake-up, a new advertising strategy and a better understanding of the competition.

“I’m hoping for the best and fearing the worst,” he said. “But I see more pain than profitable growth for the future of the company.”