TLRD - Tailored Brands

[spartansaver]

After reading Michael Burry's recent 13-f I noticed the holding Tailored Brands. After doing a quick look at the company I came to the conclusion it was highly levered (Second level thinking). But in seriousness, I have more of a question for anyone that may have a better understanding of debt intricacies.

 

When looking at TLRD's most recent annual, note 6 refers to the debt. There is a "term loan" of $1.1bn, a asset-based revolver of $500mn and $600mn in the "senior notes."

 

Reading further down in note 9 the senior notes are laid out in more detail. I have copied the first paragraph regarding the senior notes.

 

"The Senior Notes are guaranteed, jointly and severally, on an unsecured basis by certain of our U.S. subsidiaries. The Senior Notes and the related guarantees are senior unsecured obligations of the Company and the guarantors, respectively, and will rank equally with all of the Company's and each guarantor's present and future senior indebtedness. The Senior Notes will mature on July 1, 2022. Interest on the Senior Notes is payable on January 1 and July 1 of each year."

 

Then you come to note 19. Note 19 lays out the "guarantors" separate from the rest of the business. The guarantors are primarily Jos. A Bank aka "The Crap".

 

In February Men's Warehouse restructured into a holding structure.

 

Finally my question, can Men's Warehouse spin-off Jos. A Bank with the $600mn in debt or in the case of bankruptcy let the $600mn in "senior notes" simply take Jos. A Bank off of TLRD's hands?

 

Based on this scenario you have a company that in 2013 generated ~$200mn in operating income generating slightly more now with ~$1bn in debt and another company that is in the midst of a turnaround and ~$600mn in debt.

 

Rough valuation 220*(1-.34)*15 = 2,178 - $1,020 =1,158 + stub of Jos A Bank

 

Current market cap is $550mn

 

This scenario hinges on if this is indeed possible. I personally haven't gotten comfortable with it, although I have a case of "really want to believe it" bias.

 

[JayGatsby]

This from Feb 1, 2016 8k:

In connection with the Reorganization, on January 29, 2016, Tailored Brands entered into a Second Supplemental Indenture (the “Supplemental Indenture”) to that certain Indenture, dated as of June 18, 2014, by and among Men’s Wearhouse, The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”) and the guarantors party thereto (as supplemented from time to time, the “Indenture”), relating to Men’s Wearhouse’s $600 million aggregate principal amount of 7% Senior Notes due 2022 (the “Notes”). The Supplemental Indenture was entered into by and among Men’s Wearhouse, Tailored Brands, Shared Services and the Trustee. Pursuant to the Supplemental Indenture, as of the Effective Time, Tailored Brands and Shared Services has each provided an unconditional, unsecured guarantee of the Notes.

As provided for in the Merger Agreement, Merger Sub merged with and into Men’s Wearhouse, with Men’s Wearhouse continuing as the surviving corporation and as a wholly-owned subsidiary of Tailored Brands (the “Merger”).

Looks like the Notes have a guarantee from the parent that would put them ahead of the equity?

[spartansaver]

Jay, after reading your 8-k post a few times it sounds like you are correct. Thanks for posting that.

[walkie518]

Anyone following this one?  Like/dislike?

 

the company has some issues, but the stock trades at 2x op cash flow...is adj eps that crooked? 

 

it's my understanding that there is no deprec advantage, but that doesn't justify the stock selling at 20% of sales?  Risk reward looks pretty good here?

 

For those that have invested in Fiat, does any one see the correlation here?  2nd rate business selling at such a low price it's hard to ignore buying? 

 

EBIT TTM Q2 2018 was $240.5m  and market cap is $638m ... don't see so many companies this large trading at such depressed levels...

 

Mgmt marks Free Cash Flow TTM 2Q 2018 at $323m, is this number bogus?  If so, how? 

 

Do we expect sales to drop by 75% over the next 10 years?  Is that even feasible given formal/suit rental business and footprint? 1500 stores is a lot of brick-and-mortar but fairly geographically diversified...not sure how many more closures they're expecting?

[KJP]

 

Mgmt marks Free Cash Flow TTM 2Q 2018 at $323m, is this number bogus?  If so, how? 

 

 

Looking at the Q2 release (https://ir.tailoredbrands.com/press-releases/detail/1853/), there's a $150 million year-over-year decline in inventory and a $40 million increase in receivable and accounts payable.  That type of working capital change is going to flatter a TTM free cash flow figure.  So, I would look carefully at working capital changes when considering any TTM free cash flow number.

[spartansaver]

 

EBIT TTM Q2 2018 was $240.5m  and market cap is $638m ... don't see so many companies this large trading at such depressed levels...

 

 

My understanding is that you don't wont to mix up a pre interest number (EBIT) with only an equity number (market cap). The more relevant metric would be enterprise value (market cap + net debt).

[mwtorock]

 

Mgmt marks Free Cash Flow TTM 2Q 2018 at $323m, is this number bogus?  If so, how? 

 

 

Looking at the Q2 release (https://ir.tailoredbrands.com/press-releases/detail/1853/), there's a $150 million year-over-year decline in inventory and a $40 million increase in receivable and accounts payable.  That type of working capital change is going to flatter a TTM free cash flow figure.  So, I would look carefully at working capital changes when considering any TTM free cash flow number.

 

agreed that one needs to adjust these figures to estimate sustainable operating cash flow and owners' earnings.

[heth247]

 

Do we expect sales to drop by 75% over the next 10 years?  Is that even feasible given formal/suit rental business and footprint? 1500 stores is a lot of brick-and-mortar but fairly geographically diversified...not sure how many more closures they're expecting?

 

They were able to negotiate a 25 bps reduction in their term loan interest back in Oct last year. So clearly the bankers don't see big risk. I think it is interesting at this price level but I haven't followed them closely. Anybody know why there was a "crash" in middle of Jan? I didn't see any company specific news at that time.

[Gregmal]

This is an attractive business. I remember quite a while ago, being part of a wedding and being amazed by the economics of the rental game. A standard tux setup runs $200-250. To the shop it cost $350-450 to buy said outfit. There's a million little add ons that can easily take that higher. You generally have to put down cash deposits as well. You typically get at least 7-8 rentals out of a suit. If the client damages or ruins it, you charge them.

 

So the above got me interested in the two dominant companies(who are now one) but the debt levels IMO were concerning. At the end of the day I am a pass on this because high debt levels and retail are a cocktail I'm not fond of.

[walkie518]

I see an improving balance sheet story here...

 

Q3 2019 / Q3 2018 shows a debt reduction of $325m...this might have been part of the 25bp TL reduction negotiation?

 

The lost Macy's contract deal likely speaks to inventory reductions? 

 

op cash flow is marked at $200m for 6 months, sub capex of $25m, sub divi of $20m, sub $42m int exp, you still get  $113m over 6 months ... 10x this figure gives you $1B mcap from $650m mcap, what about the other half of the year?

 

despite the naysayers, the stock appears to have a material margin of safety

 

I don't like fashion businesses having seen the cycles, but cheap suits and tux rentals will always be a part of the American fabric ;) 

[Spekulatius]

I see an improving balance sheet story here...

 

Q3 2019 / Q3 2018 shows a debt reduction of $325m...this might have been part of the 25bp TL reduction negotiation?

 

The lost Macy's contract deal likely speaks to inventory reductions? 

 

op cash flow is marked at $200m for 6 months, sub capex of $25m, sub divi of $20m, sub $42m int exp, you still get  $113m over 6 months ... 10x this figure gives you $1B mcap from $650m mcap, what about the other half of the year?

 

despite the naysayers, the stock appears to have a material margin of safety

 

I don't like fashion businesses having seen the cycles, but cheap suits and tux rentals will always be a part of the American fabric ;)

 

I have no comment on the valuation, but I think we will see even formal events (wedding etc) evolve with attending people wearing casual clothing. NYC will probably be behind the eight ball with this trend, but I have seen this already in CA.

[walkie518]

big move today on ... nothing? in anticipation of an awful quarter?

[walkie518]

well, here it is

 

https://content.equisolve.net/_e1b04ac72d1e6d911df0e3222f59eb4e/menswearhouse/news/2019-03-13_Tailored_Brands_Inc_Reports_Fiscal_2018_Fourth_1865.pdf

 

interesting point is that the company paid down $232m in debt yet has a $580m mcap...AH looks like a bloodbath, my guess is it moderates prior to open

 

this might create an interesting buying opportunity

 

if sales are on a slow decline, TLRD could still buy all of the stock before sales disappear...

 

[Okonomen]

Here's an interesting view on TB:

 

https://sumzero.com/headlines/telecom/SATS/444-the-top-stocks-for-2019

 

Scroll down and click "Download the Top Stocks for 2019 PDF Here" and you'll go to a page with all the cases

 

 

 

 

[heth247]

Anybody still following this stock? It has come down a lot recently. My main concern is the debt, but the banks seemed comfortable with it and even lowered their interest rate last year. Why market is punishing it so hard?

[mwtorock]

Anybody still following this stock? It has come down a lot recently. My main concern is the debt, but the banks seemed comfortable with it and even lowered their interest rate last year. Why market is punishing it so hard?

 

there is a broad sell off in retailers due to bad earnings reported so far. Apparel is one of the worst industries among retailers.

then the tariffs are not helping, TLRD still source 40% i think from China if i remember correctly. and you have a CEO that promotes fashion, which translates to a lot more cap ex than before... TLRD is likely to cut estimates and guide lower, but the question stays if that has been baked into the price enough yet...

[walkie518]

Anybody still following this stock? It has come down a lot recently. My main concern is the debt, but the banks seemed comfortable with it and even lowered their interest rate last year. Why market is punishing it so hard?

 

there is a broad sell off in retailers due to bad earnings reported so far. Apparel is one of the worst industries among retailers.

then the tariffs are not helping, TLRD still source 40% i think from China if i remember correctly. and you have a CEO that promotes fashion, which translates to a lot more cap ex than before... TLRD is likely to cut estimates and guide lower, but the question stays if that has been baked into the price enough yet...

 

The new CEO has a poor track record in retail despite having so many ideas. 

 

With him at the helm, it seems the board isn't making decisions in the best interest of the shareholders.

 

At the same time, if they know something we do not, or if TLRD can simply manage its debt, the stock could move materially in the other direction...

[heth247]

Stock got hammered after earning release. Numbers not too bad, but the guidance is still awful. Don't understand why don't they just cut the dividend and buy back stock at this price. Even just paying off debt would be better capital allocation.

[Guest georgelisa0426]

Stock got hammered after earning release. Numbers not too bad, but the guidance is still awful. Don't understand why don't they just cut the dividend and buy back stock at this price. Even just paying off debt would be better capital allocation.

 

Buyback stock? Why repurchase shares of a sinking ship? The company is certainly in a secular decline. The economic landscape has changed tremendously. Debt paydown should be the utmost concern.

[mwtorock]

Stock got hammered after earning release. Numbers not too bad, but the guidance is still awful. Don't understand why don't they just cut the dividend and buy back stock at this price. Even just paying off debt would be better capital allocation.

 

If they cut dividend, it would be a horrible drop in price now, e.g. GME. I think they want to show people that they are not concerned about cashflow and can keep up with the dividend and debt payments.

[heth247]

If they cut dividend, it would be a horrible drop in price now, e.g. GME. I think they want to show people that they are not concerned about cashflow and can keep up with the dividend and debt payments.

 

 

If they just cut without buyback, yes. But cut it and announce a buyback of, say $100M, should be the best capital allocation. GME has much bigger problem and double digit rev decline. TLRD is not. They are paying $50M/year in dividend, which can buy back almost 20% of float at current price. If price drops more and it just means they can buy more with the same amount of money.  It looks like a no brainer to me.

[spartansaver]

If they cut dividend, it would be a horrible drop in price now, e.g. GME. I think they want to show people that they are not concerned about cashflow and can keep up with the dividend and debt payments.

 

 

If they just cut without buyback, yes. But cut it and announce a buyback of, say $100M, should be the best capital allocation. GME has much bigger problem and double digit rev decline. TLRD is not. They are paying $50M/year in dividend, which can buy back almost 20% of float at current price. If price drops more and it just means they can buy more with the same amount of money.  It looks like a no brainer to me.

 

The shares are only worth something if they can refinance debt in 2021/2022. They should cut divi and any buyback and purely focus on that atrocious balance sheet.

[spartansaver]

If they cut dividend, it would be a horrible drop in price now, e.g. GME. I think they want to show people that they are not concerned about cashflow and can keep up with the dividend and debt payments.

 

 

If they just cut without buyback, yes. But cut it and announce a buyback of, say $100M, should be the best capital allocation. GME has much bigger problem and double digit rev decline. TLRD is not. They are paying $50M/year in dividend, which can buy back almost 20% of float at current price. If price drops more and it just means they can buy more with the same amount of money.  It looks like a no brainer to me.

 

The shares are only worth something if they can refinance debt in 2021/2022. They should cut divi and any buyback and purely focus on that atrocious balance sheet.

 

Also, operating income for Men's Warehouse got crushed during the recession. If we head towards any kind of recession, this could get ugly very quickly. I think no-brainer for such a poor balance sheet may be a strong choice of words.

[spartansaver]

If they cut dividend, it would be a horrible drop in price now, e.g. GME. I think they want to show people that they are not concerned about cashflow and can keep up with the dividend and debt payments.

 

 

If they just cut without buyback, yes. But cut it and announce a buyback of, say $100M, should be the best capital allocation. GME has much bigger problem and double digit rev decline. TLRD is not. They are paying $50M/year in dividend, which can buy back almost 20% of float at current price. If price drops more and it just means they can buy more with the same amount of money.  It looks like a no brainer to me.

 

The shares are only worth something if they can refinance debt in 2021/2022. They should cut divi and any buyback and purely focus on that atrocious balance sheet.

 

Also, operating income for Men's Warehouse got crushed during the recession. If we head towards any kind of recession, this could get ugly very quickly. I think no-brainer for such a poor balance sheet may be a strong choice of words.

 

Comparing anything to Gamestop will sound appealing.

[heth247]

The shares are only worth something if they can refinance debt in 2021/2022. They should cut divi and any buyback and purely focus on that atrocious balance sheet.

 

Also, operating income for Men's Warehouse got crushed during the recession. If we head towards any kind of recession, this could get ugly very quickly. I think no-brainer for such a poor balance sheet may be a strong choice of words.

 

They only have $230M senior debt due in 2022, the rest (~$900M term loan) are not due until 2025.