TLRD - Tailored Brands

[Dalal.Holdings]

Yawn...they just have to keep paying down debt and EV will then get closer to market cap and shareholders will be taken care of. They have plenty of cash flow to cover the dividend. Doesn’t seem necessary to cut.

[walkie518]

Yawn...they just have to keep paying down debt and EV will then get closer to market cap and shareholders will be taken care of. They have plenty of cash flow to cover the dividend. Doesn’t seem necessary to cut.

 

If cash flow holds!

[spartansaver]

Yawn...they just have to keep paying down debt and EV will then get closer to market cap and shareholders will be taken care of. They have plenty of cash flow to cover the dividend. Doesn’t seem necessary to cut.

 

If cash flow holds!

 

Riding with a knife at the steering wheel.

[TBW]

This is really interesting stock to consider (I am still doing my work on it). 

 

Negatives:

- negative comps with high debt, for a retailer usually means stay very far away.

- while gross margins are high, so is SG&A, with low net margins cash flow can decrease super quick esp if there is a recession

- inventories higher, albeit not that bad

 

Positives:

- should be able to paydown bond as it comes due in 2022

- valuation is crazy cheap 4.6x EV/EBITDA, ~1x FCF (assuming it holds) with debt longer dated (ie. if they pay down debt over 3 to 5yrs that flows directly to equity)

 

To me, I can see why this retailer fills a needed niche.  While I think retail is dead for some aspects, like general retailers (ie. Macy's, JCP), I still think niches should be fine (although I briefly liked LB with that thesis and that did not work out...).

 

In a situation like this I think buybacks are a bad idea.  If this works out, stock will be up huge.  Buying back would only increase an already large return.  Why not just fix balance sheet and increase odds of survival?  I also think that the company can likely work with the loan holders, as they can roll that debt a few times to help survival, but they need to make paying down the bonds a priority.  The bond maturity date is a very big risk for them, imo.

 

I also noticed that short interest is still 41% of the float!  I respect shorts opinions, what is their view here?  I know the acquisition was awful, and that there may have been some inventory games on the acquiree that I know some had issues with, but is the short really that compelling at this price?  Would be interested to hear that thesis.

 

Also interesting to consider a recession, lower interest rates would help them, but lower sales probably means losses...

 

 

[simple]

Super-low valuation now! Falling knife though... Will be looking at it more.

[kab60]

TBW, why so worried about the bonds? Less than 300m outstanding I believe that trade just below par?

 

According to Sentieo TLRD trades at a FCF yield to equity of 87,3 pct. That's while they did a 900m refi last year (better terms).

 

Why the huge discrepancy between the bond market and equity market?

 

Sure people have seen Michael Burry getting increasingly involved lately. Sycamore Partners apparently also circling (rumour has it they'll pay 10$/share).

 

I can see why TLRD fill a niche, but I also don't like falling revenue combined with lots of financial and operating leverage.

 

That said, with massive short interest and apparently pretty comfortable lenders, it looks like a very interesting bet.

[mwtorock]

Maybe Burry has a point here?

 

I mean they dont have to announce an accelerated tender of 100m or anything big. They just need to say for example we have 66m from asset sale and we will split to use half to retire debt and half to buy back stocks. With so much float shorted and stock at historical low, it ought to be one of the best ways (if not the best) to create shareholder value.

 

Of cause unless the management sees the business declines so fast that it worries about survival...

[dbuch]

Way to go Burry!

 

After extensive review, the Board of Directors approved an update to the Company’s capital allocation policy. Effective in the fourth quarter, the Company’s quarterly cash dividend will be suspended and redeployed for accelerated debt repayment and share repurchases. This does not impact the previously approved quarterly cash dividend of $0.18 per share payable on September 27, 2019, to shareholders of record at the close of business on September 17, 2019.

 

Suspending the quarterly cash dividend of $0.18 per share is expected to make available approximately $36.5 million on an annualized basis. The Company has $48.0 million available for share repurchases under its previously authorized 2013 share repurchase program.

[Gregmal]

Maybe its just me, but this is horrible news on top of horrible results. Anyone who's seen this before knows this move is not about buying back stock, and probably not even about buying back some of the debt; its about cutting the dividend. Just done in a rather sneaky, hand waving, illusory way.

[Gregmal]

Well, guess its not just me. Stock just came out of trading halt with a 4 handle...

[walkie518]

Well, guess its not just me. Stock just came out of trading halt with a 4 handle...

after hours down 26%

[heth247]

Maybe its just me, but this is horrible news on top of horrible results. Anyone who's seen this before knows this move is not about buying back stock, and probably not even about buying back some of the debt; its about cutting the dividend. Just done in a rather sneaky, hand waving, illusory way.

 

Why?  I have always thought the dividend is not good capital allocation. Either buying back debt or buying back stock are better capital allocation. At this point, I prefer them to buy back debt.  I think management is making the right decision, and actually I am now considering buying the stock.

[Gregmal]

Maybe its just me, but this is horrible news on top of horrible results. Anyone who's seen this before knows this move is not about buying back stock, and probably not even about buying back some of the debt; its about cutting the dividend. Just done in a rather sneaky, hand waving, illusory way.

 

Why?  I have always thought the dividend is not good capital allocation. Either buying back debt or buying back stock are better capital allocation. At this point, I prefer them to buy back debt.  I think management is making the right decision, and actually I am now considering buying the stock.

 

As I said, its more the approach. Its handwaving and seemed designated to draw attention away from the fact that the quarter was pretty awful, and guidance was bad. Even down to the odd mid trading day halt...

[jrallen81]

Results were also poor, let's not forget.

[Nomad]

Assuming that Burry's 13-F reflects a net long position, being on the other side of the trade from him gives me pause. Nevertheless, I still don't see how TLRD isn't a zero.

 

Men's formalwear is in secular decline. The tie is dead (thank God we put an end to that nonsense) and the jacket is dying. Millenials aren't buying, and when they are buying, it's from places like Suit Supply that have slightly higher pricing but offer better quality and more customization than TLRD. This trend is apparent even away from the coasts in Middle America; at the low end, men's formal wear is an undifferentiated commodity business that is being disrupted. Add in the huge footprint of the TLRD locations (overhead $$$), the poor management and capital allocation decisions, and the big debt load, and I don't see how TLRD is around in 10 years.

 

As an aside, SNL had a funny take on TLRD's core product a couple years ago: https://www.nbc.com/saturday-night-live/video/jos-a-bank-cleaning-product/2768588

[spartansaver]

Assuming that Burry's 13-F reflects a net long position, being on the other side of the trade from him gives me pause. Nevertheless, I still don't see how TLRD isn't a zero.

 

Men's formalwear is in secular decline. The tie is dead (thank God we put an end to that nonsense) and the jacket is dying. Millenials aren't buying, and when they are buying, it's from places like Suit Supply that have slightly higher pricing but offer better quality and more customization than TLRD. This trend is apparent even away from the coasts in Middle America; at the low end, men's formal wear is an undifferentiated commodity business that is being disrupted. Add in the huge footprint of the TLRD locations (overhead $$$), the poor management and capital allocation decisions, and the big debt load, and I don't see how TLRD is around in 10 years.

 

As an aside, SNL had a funny take on TLRD's core product a couple years ago: https://www.nbc.com/saturday-night-live/video/jos-a-bank-cleaning-product/2768588

 

Hahaha, awesome video.

[dbuch]

 

Assuming that Burry's 13-F reflects a net long position, being on the other side of the trade from him gives me pause. Nevertheless, I still don't see how TLRD isn't a zero.

 

Men's formalwear is in secular decline. The tie is dead (thank God we put an end to that nonsense) and the jacket is dying. Millenials aren't buying, and when they are buying, it's from places like Suit Supply that have slightly higher pricing but offer better quality and more customization than TLRD. This trend is apparent even away from the coasts in Middle America; at the low end, men's formal wear is an undifferentiated commodity business that is being disrupted. Add in the huge footprint of the TLRD locations (overhead $$$), the poor management and capital allocation decisions, and the big debt load, and I don't see how TLRD is around in 10 years.

 

As an aside, SNL had a funny take on TLRD's core product a couple years ago: https://www.nbc.com/saturday-night-live/video/jos-a-bank-cleaning-product/2768588

 

The SSS appear to be fairly flat per year outside of '08-09

 

 

 

 

 

 

[walkie518]

 

Assuming that Burry's 13-F reflects a net long position, being on the other side of the trade from him gives me pause. Nevertheless, I still don't see how TLRD isn't a zero.

 

Men's formalwear is in secular decline. The tie is dead (thank God we put an end to that nonsense) and the jacket is dying. Millenials aren't buying, and when they are buying, it's from places like Suit Supply that have slightly higher pricing but offer better quality and more customization than TLRD. This trend is apparent even away from the coasts in Middle America; at the low end, men's formal wear is an undifferentiated commodity business that is being disrupted. Add in the huge footprint of the TLRD locations (overhead $$$), the poor management and capital allocation decisions, and the big debt load, and I don't see how TLRD is around in 10 years.

 

As an aside, SNL had a funny take on TLRD's core product a couple years ago: https://www.nbc.com/saturday-night-live/video/jos-a-bank-cleaning-product/2768588

 

The SSS appear to be fairly flat per year outside of '08-09

 

If SSS declines after recent changes... that TLRD paid such a big dividend was a travesty given the debt load

 

For all practical purposes, getting rid of the dividend is likely a good thing, unless the sole reason for doing so is to keep the lights on

 

As long as SSS remain flat, there is value here.  Cash from ops has increased fairly substantially since 2016.  I suppose looking at Q/Q changes to cash flow relative to business pivots will be more telling than comparing figures from the 10-Ks? 

 

Risk-reward here isn't so bad, lose $5 for a possible gain of $15?  Then again, feels like gambling?

[AlanS]

For Tailored Brands, FCF was positive since 2016 (3 yrs), after the disastrous purchase of JoS. A. Bank. Sales revenue has not fallen off a cliff, but would probably decline. It has committed and paid down its debt by 400m since 2017. Eliminated its dividend, saving about 30+m a year. While committing to buying back shares which would further increase its EPS.

 

In other words TLRD seems safer now than previously. Management so far made a few good choices during the short time they were elected, with the NFL deal, the share buyback and dividend elimination.

 

The concern is whether it could be able to catch its own fall from the mistakes of the previous management.

[mwtorock]

For Tailored Brands, FCF was positive since 2016 (3 yrs), after the disastrous purchase of JoS. A. Bank. Sales revenue has not fallen off a cliff, but would probably decline. It has committed and paid down its debt by 400m since 2017. Eliminated its dividend, saving about 30+m a year. While committing to buying back shares which would further increase its EPS.

 

In other words TLRD seems safer now than previously. Management so far made a few good choices during the short time they were elected, with the NFL deal, the share buyback and dividend elimination.

 

The concern is whether it could be able to catch its own fall from the mistakes of the previous management.

 

The management was clearly under pressure from activist for share buyback and dividend elimination. If they did that on their own, it would be much better. The CFO said on cc that their focus is still debt reduction(eg. all the cash they get hands on probably go there first). It sounds like that share buybacks are for additional cash flows if any in 2020 (a bit of step child treatment). They are not aggressive enough in terms of buybacks at multi-age low prices, and it just does not look like they are confident in the business at all.

[5xEBITDA]

For Tailored Brands, FCF was positive since 2016 (3 yrs), after the disastrous purchase of JoS. A. Bank. Sales revenue has not fallen off a cliff, but would probably decline. It has committed and paid down its debt by 400m since 2017. Eliminated its dividend, saving about 30+m a year. While committing to buying back shares which would further increase its EPS.

 

In other words TLRD seems safer now than previously. Management so far made a few good choices during the short time they were elected, with the NFL deal, the share buyback and dividend elimination.

 

The concern is whether it could be able to catch its own fall from the mistakes of the previous management.

 

The management was clearly under pressure from activist for share buyback and dividend elimination. If they did that on their own, it would be much better. The CFO said on cc that their focus is still debt reduction(eg. all the cash they get hands on probably go there first). It sounds like that share buybacks are for additional cash flows if any in 2020 (a bit of step child treatment). They are not aggressive enough in terms of buybacks at multi-age low prices, and it just does not look like they are confident in the business at all.

 

I don't really think there is a good reason to be confident about this business. Paying down debt is 100% the right move...a lot of good a big buyback will do everyone when their debt comes due in a few years and they can't deal with it.

[Foreign Tuffett]

 

I don't really think there is a good reason to be confident about this business. Paying down debt is 100% the right move...a lot of good a big buyback will do everyone when their debt comes due in a few years and they can't deal with it.

 

This

[AlanS]

Agreed on that. Paying down debt should be the main aim of the company if it aims to remain solvent.

 

Also since TLRD eliminated the dividend. A buyback wouldn't really reduce its cost of capital.

 

A buyback would only make sense if the company has the resources and feels its share price is undervalued. Alternatively, an optimal situation would be to do a share buyback with the earmarked 48m for share repurchases, get the company on even keel by paying down debt and improving cashflow and margins and then reissuing the shares at a much higher price once this is accomplished. But I have seen more disastrous share buybacks than good ones and it works better if the company has less debt.

 

 

[Nomad]

Latest 13D update from Burry: https://www.sec.gov/Archives/edgar/data/884217/000090514820000571/efc20-416_sc13da.htm

 

Also interesting today - CEO from Kontoor Brands talking his book on the death of dress pants, but it's hard to say that he's wrong:

 

“You’re going to see people walking back into the office and saying, ‘Why am I all dressed up? I could wear denim today just fine,’” Kontoor Brands Inc. Chief Executive Officer Scott Baxter said in an interview.

 

It might be wishful thinking for the head of the Wrangler and Lee brands, but there’s reason to think the coronavirus quarantine could be another nail in the coffin for formal office attire.

 

Companies had already been loosening rules on work clothes. Patagonia vests have become staples on Wall Street and in Silicon Valley. Women have traded business suits and tailored pants for clothes with more stretch. With millions of Americans now using their living rooms as offices, donning casual tees or hoodies during video calls has become the norm.

 

https://www.bloomberg.com/news/articles/2020-05-07/denim-ceo-says-dress-pants-aren-t-coming-back-after-covid-19

[5xEBITDA]

Management is working with PJT Partners and a group of bank debt holders is working with Houlihan Lokey to advise on the likely covenant violation and potential restructuring. Not sure who bondholders are working with or if HL is advising a cross over group or only bank debt.