| BANK JOS A CLOTHIERS INC /DE/ under “Item 1A Risk Factors |
| ” These cautionary statements qualify all of the forward-looking statements the Company makes herein |
| The Company cannot assure you that the results or developments anticipated by the Company will be realized or, even if substantially realized, that those results or developments will result in the expected consequences for the Company or affect the Company, its business or its operations in the way the Company expects |
| The Company cautions you not to place undue reliance on these forward-looking statements, which speak only as of their respective dates |
| The Company does not undertake an obligation to update or revise any forward-looking statements to reflect actual results or changes in the Company’s assumptions, estimates or projections |
| The identified risk factors and others are more fully described under the caption “Item 1A Risk Factors |
| On December 14, 2005, the Company’s Board of Directors declared a 25prca common stock dividend payable on February 15, 2006 to stockholders of record as of January 27, 2006 |
| In conjunction with the distribution of the stock dividend, the Company retired all of its previously held shares of treasury stock |
| Unless otherwise indicated, all historical weighted average share and per share amounts and all references to the number of common shares elsewhere in the consolidated financial statements, and notes thereto, have been restated to reflect the stock dividend |
| Restatements |
| The consolidated financial statements for fiscal years ended February 2, 2002, February 1, 2003 and January 31, 2004 were restated in fiscal year ended January 29, 2005 (fiscal 2004) in connection with the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on April 14, 2005, to correct certain errors in the accounting for leases |
| A Bank Clothiers, Inc, a Delaware corporation (the “Company” or “Jos |
| A Bank”), is a designer, retailer and direct marketer (through stores, catalog and Internet) of men’s tailored and casual clothing and accessories |
| The Company sells substantially all of its products exclusively under the Jos |
| A Bank label through its 324 retail stores (as of January 28, 2006, which includes seven outlet stores and eleven franchise stores) located throughout 40 states and the District of Columbia in the United States, as well as through the Company’s nationwide catalog and Internet (www |
| com) operations |
| 1 ______________________________________________________________________ The Company’s products are targeted at the male career professional and emphasize the Jos |
| A Bank brand of high quality tailored and casual clothing and accessories |
| The Company’s products are offered at “Three Levels of Luxury,” which include the opening Jos |
| A Bank collection as well as the more luxurious Signature and Signature Gold collections |
| The Company sources all of its products through third party suppliers, manufacturers and/or agents using Jos |
| A Bank designs and specifications |
| The Company operates on a 52-53 week fiscal year ending on the Saturday closest to January 31 |
| Information presented for the fiscal years ended January 31, 2004, January 29, 2005 and January 28, 2006 are hereinafter referred to as fiscal 2003, fiscal 2004 and fiscal 2005, respectively |
| The fiscal year ending February 3, 2007 (fiscal 2006) will be a 53-week year |
| Strategy The Company, established in 1905, has reinvented itself over the past six years by focusing on its “Four Pillars of Success,” which consist of: 1 |
| Quality 2 |
| Service 3 |
| Product Innovation The Company instills these four factors into all aspects of its operation and believes they help create a unique specialty retail environment that develops customer loyalty |
| Examples of the Company’s commitment to this strategy include: · continually increasing the already high level of quality of its products by developing and maintaining stringent design and manufacturing specifications; · developing its multi-channel retailing concept by opening more stores and expanding the catalog and Internet operation, thus offering multiple convenient channels for customers to shop; · providing outstanding customer service and emphasizing high levels of inventory fulfillment for its customers; · expanding its product assortment, including developing the “Three Levels of Luxury” and continuing to add innovative new products; and · increasing its product design and development capabilities while eliminating the middleman in the sourcing of its products |
| The Company’s branding emphasizes very high levels of quality in all aspects of its interactions with customers, including merchandise and service |
| The Company has developed very stringent specifications in its product designs to ensure consistency in the fit and quality of the product |
| The merchandise assortment has “Three Levels of Luxury” and one unwavering level of quality |
| The “Three Levels of Luxury” range from the original Jos |
| A Bank collection to the more luxurious Signature collection to the exclusive Signature Gold collection |
| Examples of the different levels of luxury include the wool used in suits, sport coats and slacks, ranging from Super 100’s fine wool to the rare 150’s wool, and the uniqueness of tie swatches, some of which are offered in pre-numbered, limited editions |
| The Company emphasizes customer service in all aspects of the business |
| Sales associates focus on developing close business relations with their customers to help serve all of the customer’s clothing needs |
| Inventory availability is a key focus to ensure customers can purchase merchandise when requested, 2 ______________________________________________________________________ whether in the stores or through the catalog or Internet |
| A tailor is staffed in each store to ensure prompt, high quality alteration service for our customers |
| Multi-Channel Retailing |
| The Company’s strategy is to operate its three channels of selling as an integrated business and to provide the same personalized service to its customers regardless of whether merchandise is purchased through its stores, the Internet or catalog |
| The Company believes the synergy between its stores, its Internet site and its catalog offers an important convenience to our customers and a competitive advantage to the Company |
| The Company believes it has significant opportunity to leverage the three channels of selling by promoting each channel together to create awareness of the brand |
| For example, the Internet site provides store location listings and can be used as a promotional source for the stores and catalog |
| The Company also uses its catalog to communicate the Jos |
| A Bank image, to provide customers with fashion guidance in coordinating outfits and to generate store and Internet traffic |
| As a customer convenience, the Company’s information systems enable customers to purchase all products that are offered in the catalog and Internet while in a store |
| Conversely, customers may have catalog purchases shipped to a store for alteration and pickup and can return or exchange catalog and Internet purchases at a store |
| Store Growth |
| The Company believes that it has substantial opportunity to increase its store base by adding stores throughout the country |
| As part of its plan to increase the chain to approximately 500 stores within the next several years, the Company opened 25 new stores in fiscal 2002, 50 new stores in fiscal 2003, 60 new stores in fiscal 2004 and 56 new stores in fiscal 2005 |
| The Company intends to open new stores in existing markets which should allow the Company to leverage its existing advertising, management, distribution and sourcing infrastructure |
| The Company also intends to open stores in new markets where there are no stores within roughly a 50-mile radius, such as the western part of the United States |
| The Company opened its first stores in the states of Arizona, Idaho and South Dakota in fiscal 2005, and Washington and Nebraska in fiscal 2004 |
| Product Design and Sourcing |
| The Company has increased its design and development capabilities in the past six years and now designs and directly sources substantially all of its products |
| The designs are provided to a world-wide vendor base to manufacture |
| In certain cases, the Company has eliminated the middlemen (eg importers and resellers) in its sourcing process and contracts directly with manufacturers, although the Company used one agent to source approximately 29prca of its total product purchases in fiscal 2005 |
| The Company’s product design and sourcing strategies have resulted in reduced product costs, which have enabled the Company to design additional quality into its products, increased gross profit margins and funding for the development of the infrastructure needed to grow the chain |
| Segments The Company has two reportable segments: Stores and Direct Marketing (Internet and catalog) |
| The Company has included information with regard to these segments for each of its last three fiscal years under Note 12 of its Consolidated Financial Statements |
| The Company’s stores segment includes all full-line Company-owned stores, but excludes its seven factory stores |
| The Company has targeted specialty retail centers with certain co-tenancy for new store locations and has developed and implemented a new store prototype for all stores that have been opened since the beginning of fiscal 2001 |
| The Company opened 56 stores in fiscal 2005 and expects to continue the pace of store openings in subsequent years, including plans to open between 50 to 65 stores in fiscal 2006 as the Company increases the chain to approximately 500 stores |
| The Company’s real estate strategy focuses primarily on stores located in high-end, specialty retail centers with the proper co-tenancy that attracts customers with demographics that are similar to the Company’s target customer |
| These specialty centers include, but are not limited to, outdoor lifestyle centers, malls and downtown/streetfront/business districts |
| As of 3 ______________________________________________________________________ January 28, 2006, the store mix of the 306 full-line Company-owned stores consisted of 80 outdoor lifestyle centers, 67 malls, 32 downtown/streetfront/business districts and 127 strip centers, power centers or freestanding stores |
| The Company’s store prototype was designed in the second half of fiscal 2000 and was introduced in March 2001 in Charlottesville, Virginia |
| The design emphasizes an open shopping experience that coordinates the Company’s successful corporate casual and sportswear with its suits, shirts, ties and other products |
| The store design is based on the use of wooden fixtures with glass shelving, numerous tables to feature fashion merchandise, carpet and abundant accent lighting and is intended to promote a pleasant and comfortable shopping environment |
| For stores that have been opened in the last two fiscal years, approximately 80prca of their space is dedicated to selling activities, with the remainder allocated to stockroom, tailoring and other support areas |
| The full-line, Company owned stores averaged approximately 4cmam900 square feet at the end of fiscal 2005 |
| The stores opened in fiscal 2004 and fiscal 2005 averaged approximately 4cmam350 and 4cmam230 square feet, respectively |
| The cost to open a new store is based on store size and landlord construction allowances |
| In fiscal 2005, the average cost to build a new store was approximately dlra440cmam000, including leasehold improvements, fixtures, point-of-sale equipment and tailor shop equipment |
| The Company will be reimbursed an average of approximately dlra170cmam000 of the new store build-out cost for the stores opened in fiscal 2005 |
| New stores also require an inventory investment, which varies based on the season the store opens |
| In fiscal 2005, store openings required an average initial investment of approximately dlra300cmam000 of inventory to offer a full range of products, although amounts vary by store |
| The inventory levels in a new store are typically increased as the store’s sales mature |
| Substantially all full-line Company owned stores have a tailor shop, which provides a range of tailoring services as a convenience to customers |
| The stores are designed to utilize Company-owned regional overflow tailor shops which allow the use of smaller tailor shops within each store |
| Operating the regional tailor shops has allowed the Company to optimize its tailoring revenues in the stores by sending all overflow work to regional tailor shops |
| These overflow shops experience higher productivity as the tailors focus solely on alterations, whereas store tailors assist customers during the course of the day |
| In addition, the store managers and certain additional store staff have been trained to fit tailored clothing for alterations |
| The Company guarantees all of the tailoring work performed |
| The Company has eleven franchise locations |
| Generally, a franchise agreement between the Company and the franchisee provides for a ten-year term with an option, exercisable by the franchisee under certain circumstances, to extend the term for an additional ten-year period |
| Franchisees pay the Company an initial fixed franchise fee and then a percentage of its net sales |
| Franchisees are required to maintain and protect the Company’s reputation for high quality, classic clothing and customer service |
| Franchisees purchase substantially all merchandise offered for sale in their stores from the Company at an amount above the Company’s cost |
| The Company has seven outlet stores which are used to liquidate excess merchandise and offer certain first quality products at a reduced price |
| Because of the classic character of the Company’s merchandise and aggressive store clearance promotions, historically, the Company has been able to sell substantially all of its products through its full-line Company owned stores and outlet stores and has not been required to sell significant amounts of inventory to third party liquidators |
| 4 ______________________________________________________________________ At January 28, 2006, the Company operated 324 retail stores (including seven factory stores and eleven franchise stores) in 40 states and the District of Columbia |
| The following table sets forth the stores that were open at that date |
| JOS A BANK STORES State Total # Of Stores State Total # Of Stores Alabama(a) 6 Missouri 5 Arizona 2 Nebraska 1 Arkansas 1 Nevada 2 California 18 New Jersey 16 Colorado 6 New York 13 Connecticut 10 North Carolina(a) 14 Delaware 1 Ohio 14 Florida 20 Oklahoma 4 Georgia(a)(b) 14 Pennsylvania(b) 18 Idaho 1 Rhode Island 2 Illinois(a) 18 South Carolina(a) 9 Indiana 6 South Dakota 1 Iowa 3 Tennessee(a) 7 Kansas 3 Texas 28 Kentucky 4 Utah 2 Louisiana(a) 5 Virginia(b) 18 Maryland(b) 19 Washington 2 Massachusetts 8 Washington, DC 3 Michigan 9 West Virginia 1 Minnesota 4 Wisconsin 5 Mississippi(a) 1 Total(c) 324 _________________________________________________________________ (a) Includes one or more franchise stores (b) Includes one or more factory stores (c) Does not include three stores opened subsequent to fiscal 2005 year-end through March 30, 2006 |
| Direct Marketing |
| The Company’s direct marketing segment, consisting of its catalog and Internet channels, is a key part of the Company’s multi-channel concept |
| The direct marketing segment recorded a sales increase of 21dtta7prca in fiscal 2005 |
| The Company’s direct marketing segment offers potential and existing customers convenience in ordering the Company’s merchandise |
| In fiscal 2004 and fiscal 2005, the Company distributed approximately 9dtta2 and 10dtta0 million catalogs, respectively, representing catalogs mailed to customers and catalogs distributed through stores |
| The catalog and Internet site offer potential and existing customers an easy way to order the full range of Jos |
| They are significant resources used to communicate our high-quality image, providing customers with guidance in coordinating outfits, generating store traffic and providing useful market data on customers |
| The Company believes customers are very confident purchasing traditional business attire through the catalog and Internet, as suits represented approximately 22prca of net sales in the direct marketing segment in fiscal 2005 |
| 5 ______________________________________________________________________ To make catalog and online shopping as convenient as possible, the Company maintains a toll-free telephone number accessible 24 hours a day, seven days a week |
| Catalog sales associates can help customers select merchandise and can provide detailed information regarding size, color, fit and other merchandise features |
| In most cases, sample merchandise is available for catalog sales associates to view, thereby allowing them to better assist customers |
| Merchandise purchased from the catalog or online may be returned to any of the Company’s stores or to the Company by mail |
| The Company has experienced strong growth in its Internet sales in each of the past three fiscal years |
| The Company has established approximately 5cmam000 affiliate arrangements which have helped increase Internet sales |
| The Company typically pays a fee to the affiliate based on a percentage of net sales generated through such affiliate |
| The Company expects to continue to pursue affiliate arrangements to help fuel future Internet sales increases |
| The Company’s Internet site has many customer-friendly features such as high processing speed, real-time inventory status, order confirmation, product search capabilities and an online catalog, among others |
| The site has enabled the Company to be responsive to trends thereby affording the Company an opportunity to increase sales |
| To process catalog orders, sales associates enter orders online into a computerized catalog order entry system, while Internet orders are placed by the customer and are linked to the same order entry system |
| After an order is placed, it automatically updates files and permits the Company to measure the response to individual catalog mailings and Internet email promotions |
| Computer processing of orders is performed by the warehouse management system which permits efficient picking of inventory from the warehouses |
| The Company’s order entry and fulfillment systems permit the shipment of most orders no later than the day after the order is placed (assuming the merchandise is in stock) |
| Orders are shipped primarily by second day delivery or, if requested, by expedited delivery services, such as United Parcel Service priority |
| Sales and inventory information is available to the Company’s merchants the next day after the transaction |
| Merchandising The Company believes it fills a niche of providing upscale classic, professional men’s clothing with superior quality at a reasonable price |
| The Company’s merchandising strategy focuses on achieving an updated classic look with extreme attention to detail in quality materials and workmanship |
| The Company offers a distinctive collection of clothing and accessories necessary to dress the career man from head to toe, including formal, business and business casual, as well as sportswear and golf apparel, all sold under the Jos |
| Its product offering includes tuxedos, suits, shirts, vests, ties, sport coats, pants, sportswear, overcoats, sweaters, belts and braces, socks and underwear, among other items |
| The Company also sells branded shoes from several vendors, which are the only major products it sells not using the Jos |
| In fiscal 2005, the Company introduced shoes under the Jos |
| A Bank brand, which are available for sale through the catalog and Internet channels and in selected stores |
| The Company’s branding emphasizes very high levels of quality in all aspects of its interactions with customers, including merchandise and service |
| The Company has developed very stringent specifications in its product designs to ensure consistency in the fit and quality of the product |
| The merchandise assortment has “Three Levels of Luxury” and one unwavering level of quality |
| The “Three Levels of Luxury” range from the Company’s original Jos |
| A Bank collection, to the more luxurious Signature collection to the exclusive Signature Gold collection |
| Examples of the different levels of luxury include the wool used in suits, sport coats and slacks, ranging from Super 100’s fine wool to the rare 150’s wool, and the uniqueness of tie swatches, some of which are offered in pre-numbered, limited editions |
| The Company believes its merchandise offering is well positioned to meet the changing trends of business dress for its target customer |
| Suits accounted for 25prca of the Company’s net sales in fiscal 2005 and 26prca in fiscal 2004, and serve as the foundation of the Company’s extensive offering of other products |
| When the corporate work environment trended to casual wear several years ago, the Company’s product offerings were modified to meet the needs of the Jos |
| 6 ______________________________________________________________________ The Company has many unique products to serve its customers’ needs and believes that continued development of innovative products is one of its “Pillars of Success |
| ” The TRIO collection is one of the Company’s solutions to corporate casual attire |
| The TRIO consists of a tailored jacket with two pairs of pants, one matching the jacket and one in a coordinating pattern |
| Therefore, the outfit can be worn as a suit, sportcoat/slack combination or as a casual outfit |
| The Company also offers its customers its Separates collection, a concept for purchasing suits that allows customers to customize their wardrobe by selecting separate, but perfectly matched, jackets and pants from one of three coat styles, plain front or pleated pants, and numerous updated fabric choices including Super 100’s wool and natural stretch wool |
| The Separates line allows a customer to buy a suit with minimal alteration that will fit his unique body size, similar to a custom-made suit |
| A Bank is one of the few retailers in the country that has successfully developed this concept, which the Company believes is a competitive advantage |
| The Company also has a very successful line of wrinkle resistant all cotton dress shirts that are made using a patented process that is owned by the vendor |
| The Company believes it has one of the most extensive selections of dress pants in the industry |
| The Company developed its Vacation-in-Paradise (“VIP”) line of casual vacation wear in fiscal 2002 |
| Its David Leadbetter golf apparel offers sportshirts, sweaters and casual trousers and is a unique branded product line in the sportswear category |
| In early fiscal 2004, the Company introduced a wrinkle resistant, stain resistant traveler cotton pique polo shirt and machine washable traveler wool pants, as part of its successful “Traveler” collection of products |
| In late fiscal 2004, it introduced a wrinkle resistant, stain-resistant suit as part of its Separates Collection |
| The Traveler Suit Separates program is designed to take advantage of our expertise in suit separates with perfectly matched suit coats and pants sold in the customer’s size for a better fit |
| The 100prca wool Traveler Suit Separates are stain resistant and made with new stretch comfort waist bands and stretch linings and include extra interior pockets |
| In fiscal 2005, the Company introduced the “Stays Cool” suit, which features an innovative fabric incorporating fibers developed by NASA, to keep the customer cool and comfortable in any climate |
| A Bank merchandise is designed through the coordinated efforts of the Company’s buying and planning staffs, working in conjunction with suppliers, manufacturers and/or agents around the world |
| The process of creating a new garment begins up to twelve months before the product’s expected in-stock date |
| Substantially all products are made to the Company’s rigorous specifications, thus ensuring consistent fit and feel for the customer |
| The merchandise management staff oversees the development of each product’s style, color and fabrication |
| The Company’s planning staff is responsible for providing each channel of business with the correct amount of products |
| The Company believes that it gains a distinct advantage over many of its competitors in terms of quality and price by designing its tailored and other products, selecting and, in certain cases, purchasing raw materials (finished wool) and then having merchandise manufactured to its own specifications by third party contract manufacturers |
| Since the Company’s designs are focused on updated classic clothing, the Company believes it experiences much less fashion risk than other retailers that offer fashions that change more frequently |
| Substantially all products manufactured must conform to the Company’s rigorous specifications with respect to standardized sizing and quality |
| The Company buys its shirts from leading US and overseas shirt manufacturers who also supply shirts to many of the Company’s competitors |
| Approximately 11prca of the total product purchases (including piece goods) in fiscal 2005 were sourced from United States suppliers, and approximately 89prca were sourced from suppliers in other countries |
| In fiscal 2005, approximately 34prca of the total product purchases were manufactured in China (including 19prca from Hong Kong) and 20prca in Mexico |
| 7 ______________________________________________________________________ The Company uses one agent to source a significant portion of its products from various companies that are located in or near Asia (China, including Hong Kong, Indonesia, Korea, Thailand, and Bangladesh) |
| Purchases through this agent represented approximately 29prca of the total product purchases in fiscal 2005 |
| The Company also makes other purchases from manufacturers and suppliers in Asia |
| Two other suppliers combined represent approximately 16prca of total product purchases in fiscal 2005 |
| The total product purchases discussed above include direct purchases of raw materials by the Company that are subsequently sent to manufacturers for cutting and sewing |
| In fiscal 2005, total raw materials represented approximately 11prca of the total product purchases made by the Company |
| Also, in fiscal 2005, five vendors accounted for over 90prca of the raw materials purchased by the Company |
| The Company transacts substantially all of its business on an order-by-order basis and does not maintain any long-term or exclusive contracts, commitments or arrangements to purchase from any finished good supplier, piece goods vendor or contract manufacturer other than an agreement with one raw materials supplier to purchase up to approximately dlra9 million of wool through fiscal 2004 at a specified price |
| A portion of the commitment extended into 2005 and was completed in fiscal 2005 |
| The Company ordinarily places orders for the purchase of inventory approximately six to twelve months in advance |
| The Company does business with all of its vendors in US currency and has not experienced any material difficulties as a result of any foreign political, economic or social instabilities |
| The Company believes that it has good relationships with its piece goods vendors, finished goods suppliers, contract manufacturers and agents and that there will be adequate sources to produce a sufficient supply of quality goods in a timely manner and on satisfactory economic terms, but it cannot guarantee such results |
| The Company has historically used mass media radio and direct mail marketing, advertising and promotion activities in support of its store and catalog/Internet operations |
| The Company also sends email promotions to its store and Internet customers |
| Core to each marketing campaign, while primarily promotional, is the identification of the Jos |
| The Company has a database of over 2dtta7 million names of people who have previously made a purchase from one of the Company’s retail stores, its Internet site or catalog or have requested a catalog or other information from the Company |
| Of these, approximately 1dtta6 million individuals have made such purchases or information requests in the past 24 months |
| The Company evaluates its database for its mailings and selects names based on expectations of response to specific promotions, which allows the Company to efficiently use its advertising dollars |
| In the fourth quarter of 2004, the Company began testing cable television as a method to increase its brand awareness and to drive customers to its stores |
| The Company also began using national magazines to increase our brand awareness |
| The Company continued to utilize these methods in 2005 and expects to continue marketing through these channels in 2006 to increase sales and brand awareness |
| Throughout each season, the Company promotes specific items or categories at specific prices that are below the initial retail price originally offered to the customer |
| These sales are used to complement promotional events and to meet the needs of the customers |
| At the end of each season, the Company conducts clearance sales to promote the sale of that season’s merchandise |
| Corporate Card |
| Certain organizations and companies can participate in our corporate card program, through which all of their employees are eligible to receive a 20prca discount off regularly-priced Jos |
| A Bank merchandise |
| The card is honored at all full-line stores as well as for catalog and Internet purchases |
| Over 130cmam000 companies nationally, from small privately-owned companies to large public companies, are now participating in the program, representing an increase of approximately 73prca over the approximately 75cmam000 companies last year |
| Participating companies are able to promote the card as a free benefit to their employees |
| As the number of participants in the corporate card program have increased significantly in the past several years, sales from the program have become a substantial portion of total sales |
| 8 ______________________________________________________________________ Apparel Incentive Program |
| A Bank Clothiers apparel incentive gift certificates are used by various companies as a reward for achievement for their employees |
| The Company also redeems proprietary gift certificates and gift cards marketed by major premium/incentive companies |
| Distribution The Company uses a centralized distribution system, under which all merchandise is received, processed and distributed through the Company’s distribution facilities located in Hampstead, Maryland |
| Merchandise received at the distribution centers is promptly inspected to ensure expected quality in workmanship and conformity to Company specifications |
| The merchandise is then allocated to individual stores or to warehouse stock (to support the direct marketing segment and to fill in stores) |
| As applicable, the merchandise is then packed for delivery and shipped to the stores, principally by common carrier |
| Each store generally receives a shipment of merchandise two to three times a week from the distribution centers; however, when necessary because of a store’s size or volume, a store can receive shipments more frequently |
| Inventory of basic merchandise in stores is replenished regularly based on sales tracked through its point-of-sale terminals |
| Shipments to catalog/Internet customers are also made from the central distribution facilities, and less frequently, from stores |
| To support new store growth, the Company upgraded its distribution system over the past five years and it is now capable of handling up to 500 stores in most of its distribution center functions |
| In late 2004, the Company increased its distribution center capacity by leasing and equipping approximately 289cmam000 square feet of space in a facility that is adjacent to its worldwide corporate headquarters |
| This location became fully operational in early 2005 |
| Management Information Systems Many of the Company’s information systems have been updated in the last seven years |
| In August 1998, the Company installed and implemented the then-current version of its merchandising, warehouse, sales audit, accounts payable and general ledger system |
| While several newer updates of this system have been released by the software vendor and not installed by the Company, the system meets the Company’s current business needs |
| In fiscal 2000, the Company upgraded its catalog order processing system to the then-current version, which was again updated in fiscal 2005 |
| The Company also designed and implemented a new Internet site in fiscal 2000 |
| In fiscal 2003, the Company implemented a new system that increased its ability to communicate design specifications to its worldwide vendor base |
| In 2004, the Company developed systems that allow increased management and reporting of pricing elements such as gross margins |
| By using these systems, the Company is able to capture greater customer data and has increased its marketing efficiency using such data |
| Competition The Company competes primarily with other specialty retailers of men’s apparel, department stores and other catalogers engaged in the retail sale of men’s apparel, and to a lesser degree with other retailers of men’s apparel |
| The Company is one of only a few national multi-channel retailers focusing exclusively on men’s apparel which the Company believes provides a competitive edge |
| The Company believes that it maintains its competitive position based not only on its ability to offer its high quality career clothing at reasonable prices, but also on greater selection of merchandise and superior customer service and product innovation as part of its “Four Pillars of Success |
| ” The Company competes with, among others, Brooks Brothers, Federated Department Stores, Lands End, Men’s Wearhouse and Nordstrom, as well as local and regional competitors in each store’s market |
| Many of these major competitors are considerably larger and have substantially greater financial, marketing and other resources than the Company |
| 9 ______________________________________________________________________ Trademarks The Company is the owner or exclusive licensee in the United States of the marks “Jos |
| ” These trademarks are registered in the United States Patent and Trademark Office |
| A Federal registration is renewable indefinitely if the trademark is still in use at the time of renewal |
| A Bank trademark are a material part of the Company’s business |
| Accordingly, the Company intends to maintain its use of the trademark |
| The Company is not aware of any claims of infringement or other material challenges to the Company’s right to use its marks in the United States |
| com” and various other Internet domain names |
| The Company intends to renew its registration of domain names from time to time for the conduct and protection of its e-commerce business |
| The Company’s net sales, net income and inventory levels fluctuate on a seasonal basis |
| The Company has increased its marketing efforts during peak selling times and expanded its inventory to include more Corporate Casual and Sportswear, resulting in profits generated during the fourth quarter holiday season becoming a larger portion of annual profits |
| Seasonality is also impacted by growth as more new stores are opened in the second half of the year |
| Seasonal fluctuations typically affect the Company’s inventory levels, with higher inventory carried in advance of peak selling periods, including the holiday season |
| In the fourth quarters of fiscal years 2003, 2004 and 2005, the Company generated approximately 59prca, 51prca and 53prca, respectively, of its annual net income |
| As of March 30, 2006, approximately 225 employees worked in the tailoring overflow shop and distribution center, most of whom are represented by the union, UNITE-HERE The current collective bargaining agreement was recently negotiated to extend to February 28, 2009 |
| The Company believes that union relations are good, as there have been no work stoppages in more than 20 years |
| The Company believes that its relations with its non-union employees are also good |
| Approximately 50 sales associates are union members under a separate contract which extends to April 30, 2006 |
| The Company maintains a good relationship with these employees and their union and does not anticipate any significant disruption in its operating workforce |
| Available Information The Company’s principal executive offices are located at 500 Hanover Pike, Hampstead, Maryland 21074 |
| The Company’s telephone number is (410) 239-2700 and its website address is www |
| The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports available on its website free of charge as soon as practicable after they are filed with the Securities and Exchange Commission |
| In addition, the public may read and copy any materials filed by the Company with the SEC at the SEC’s public reference room at 450 Fifth Street, NW, Washington DC 20549 |
| The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330 |
| Also, the SEC maintains an Internet Site that contains reports, proxy and information statements |
| Its web address is www |
| Item 1A RISK FACTORS You should consider carefully the risks described below, together with the other information contained in this report |
| If any of the following events actually occurs, the Company’s business, financial 10 ______________________________________________________________________ condition and results of operations may suffer materially |
| As a result, the market price of the Company’s common stock could decline, and you could lose all or part of your investment in the Company |
| Growth Risks |
| A significant portion of the Company’s growth has resulted and is expected to continue to result from the opening of new stores |
| While the Company believes that it will continue to be able to obtain suitable locations for new stores, negotiate acceptable lease terms, hire qualified personnel and open and operate new stores on a timely and profitable basis, no such assurances can be made |
| As the Company continues its expansion program, the proposed expansion may place increased demands on its operational, managerial and administrative resources |
| These increased demands could cause the Company to operate its business less effectively, which in turn could cause deterioration in the financial performance of the existing stores |
| The opening of stores may adversely affect catalog and Internet sales |
| In addition, the opening of new stores in existing markets may adversely affect sales and profits of established stores in those markets |
| The Company expects to fund its expansion through cash flow from operations and by borrowings under its Credit Agreement |
| However, if the Company experiences a reduction in funding sources (eg cash flows from operations or borrowings under its Credit Agreement) or a decline in performance, it may slow or discontinue store openings |
| The Company may not be able to successfully execute any of these strategies on a timely basis |
| If the Company fails to successfully implement these strategies, its financial condition and results of operations may be adversely affected |
| The retail apparel business is highly competitive and is expected to remain so |
| The Company competes primarily with specialty and discount store chains, independent retailers, national and local department stores, Internet retail stores and other catalogers engaged in the retail sale of men’s apparel, and to a lesser degree with other apparel retailers |
| Many of these competitors are much larger than the Company and have significantly greater financial, marketing and other resources than the Company |
| In many cases, the Company’s primary competitors sell their products in stores that are located in the same shopping malls or retail centers as the Company’s stores |
| Moreover, in addition to competing for sales, the Company competes for favorable site locations and lease terms in shopping malls or retail centers |
| The Company believes that its emphasis on classic styles makes it less vulnerable to changes in fashion trends than many apparel retailers; however, the Company’s sales and profitability depend upon the continued demand for its classic styles |
| The Company faces a variety of competitive challenges including: · anticipating and quickly responding to changing consumer demands; · maintaining favorable brand recognition and effectively marketing its products to consumers in several diverse market segments; · developing innovative, high-quality products in sizes, colors and styles that appeal to consumers of varying age groups and tastes; · competitively pricing its products and achieving customer perception of value; and · providing strong and effective marketing support |
| Increased competition could result in price reductions, increased marketing exposures and loss of market share, any of which could have a material adverse effect on the Company’s financial condition and results of operations |
| Consumer Spending |
| The Company’s business is sensitive to a number of factors that influence the levels of consumer spending, including political and economic conditions such as the levels of disposable consumer income, consumer debt, interest rates and consumer confidence |
| Consumer confidence may be adversely affected by national and international security concerns such as war, terrorism or the threat of war or terrorism |
| In addition, because apparel and accessories generally are discretionary purchases, 11 ______________________________________________________________________ declines in consumer spending patterns may impact the Company more negatively as a specialty retailer and could have an adverse effect on the Company’s operating results |
| Reliance on Management and Key Personnel |
| The Company believes that it has benefited substantially from the contributions of its senior management team |
| In addition, the Company’s ability to anticipate and effectively respond to changing fashion trends depends in part on its ability to attract and retain key personnel in its design, merchandising, marketing and other staff |
| We face intense competition in hiring and retaining these personnel |
| If we fail to retain and motivate our current personnel and attract new personnel, our business, financial condition and results of operations could be materially adversely affected |
| Reliance on Key Suppliers |
| Historically, the Company has bought a substantial portion of its products from a limited number of suppliers throughout the world |
| The loss of any one of these suppliers could cause a delay in the Company’s product supply |
| Any significant interruption in the Company’s product supply, such as manufacturing problems or shipping delays, could have an adverse effect on its business due to lost sales, cancellation charges, excessive markdowns or delays in finding alternative sources, and could result in increased costs to the Company |
| The Company has not experienced any material disruptions in its sourcing in the past several years |
| However, long-term disruptions of supply from any of these sources could have a material impact on the Company |
| The Company expects to continue to spread its sourcing to suppliers throughout the world |
| Additional concentrations of sourcing will be done in certain countries |
| The Company faces a variety of risks generally associated with doing business in foreign markets and importing merchandise from abroad, such as: · political instability; · imposition of new legislation or rules relating to imports that may limit the quantity of goods which may be imported into the United States from countries or regions; · imposition of duties, taxes and other charges on imports; · currency and exchange risks; · local business practice and political issues, including issues relating to compliance with domestic or international labor standards which may result in adverse publicity; · migration and development of manufacturers, which can affect where the Company’s products are or will be produced; · potential delays or disruptions in shipping and related pricing impacts; · volatile fuel supplies and costs; · disruption of imports by labor disputes; · health hazards; and · environmental or natural disasters |
| Failure to Use Acceptable Labor Practice |
| The Company requires manufacturers of the goods that it sells to operate in compliance with applicable laws and regulations |
| While the Company’s staff and agents periodically visit and monitor the operations of its independent manufacturers, the Company does not control these manufacturers or their labor practices |
| The violation of labor or other laws by an independent manufacturer used by the Company, or the divergence of an independent manufacturer’s labor practices from those generally accepted as ethical in the United States, could interrupt, or otherwise disrupt the shipment of products to the Company or damage the Company’s reputation, which may result 12 ______________________________________________________________________ in a decrease in customer traffic to the Company’s stores and therefore adversely affect its sales and net earnings |
| The Company’s products are manufactured using several key raw materials, including wool and cotton, which are subject to fluctuations in price and availability |
| In addition, in fiscal 2005, five vendors accounted for over 90prca of the raw materials purchased by the Company |
| Fluctuations in supply and market demand could cause selective shortages and affect results |
| Historically, the Company has not experienced significant fluctuations in price or availability |
| However, any significant increase in the price or decrease in the availability of certain raw materials could have an adverse impact on the Company’s business |
| Merchandise Trends and Changing Consumer Preferences |
| The Company must successfully gauge merchandise trends and changing consumer preferences to succeed |
| The Company’s success is dependent upon its ability to gauge the tastes of its customers and to provide merchandise that satisfies customer demand in a timely manner |
| The retail business fluctuates according to changes in consumer preferences dictated, in part, by fashion, performance, luxury and seasonality |
| To the extent the market for the Company’s merchandise weakens, sales will be adversely affected and the markdowns required to move the resulting excess inventory will adversely affect the Company’s operating results |
| Fluctuations in the demand for tailored and casual clothing and accessories affect the Company’s inventory levels, since merchandise usually must be ordered well in advance of the season and frequently before fashion trends are evidenced by customer purchases |
| In addition, as the Company’s business is becoming more seasonal in nature, the Company must carry a significant amount of inventory, prior to peak selling seasons when the Company builds up its inventory levels |
| The Company issues purchase orders for the purchase and manufacture of merchandise well in advance of the applicable selling season |
| As a result, the Company is vulnerable to demand and pricing shifts and to suboptimal selection and timing of merchandise purchases |
| In addition, lead times for many of the Company’s purchases are long, which may make it more difficult for the Company to respond rapidly to new or changing merchandise trends or consumer acceptance for the Company’s products |
| Growth by Acquisition |
| The Company may from time to time hold discussions and negotiations with (i) potential investors who express an interest in making an investment in or acquiring the Company, (ii) potential joint venture partners looking toward the formation of strategic alliances and (iii) companies that represent potential acquisition or investment opportunities for the Company |
| There can be no assurance any definitive agreement will be reached regarding the foregoing, nor does the Company believe that any such agreement is necessary to implement successfully its strategic plans |
| Many of the Company’s stores are located in shopping malls or retail centers |
| Sales at these stores are derived, in part, from the high volume of traffic in those malls or retail centers |
| The Company’s stores benefit from the ability of the mall’s or retail center’s other tenants and other area attractions to generate consumer traffic in the vicinity of its stores and the continuing popularity of malls or retail centers as shopping destinations |
| Sales volume and mall or retail center traffic may be adversely affected by economic downturns in a particular area and the closing of nearby stores |
| In addition, a decline in the desirability of the shopping environment in a particular mall or retail center, or a decline in the popularity of mall shopping or retail center among the Company’s target consumers, would adversely affect its business |
| Part of the Company’s future growth is significantly dependent on its ability to operate stores in desirable locations with capital investment and lease costs that allow the Company to maintain its profitability |
| The Company cannot be sure as to when or whether such desirable locations will become available at reasonable costs |
| In addition, the Company must be able to renew its existing store leases on terms that meet its financial targets |
| The Company’s failure to secure favorable real estate and lease terms 13 ______________________________________________________________________ generally and upon renewal could cause the Company to lose market share which would reduce its revenues and gross profit |
| Delivery Failures |
| The success of the Company’s stores depends on their timely receipt of merchandise from the distribution facilities, and the success of the Company’s direct marketing segment depends on the timely delivery of merchandise to the customers |
| Independent third party transportation companies deliver the Company’s merchandise to substantially all of the stores and to the customers |
| Disruptions in the delivery of merchandise or work stoppages by employees of these third parties could delay the timely receipt of merchandise, which could result in cancelled sales, a loss of loyalty to the Company’s brand and excess inventory |
| The Company may be required to respond in a number of ways, many of which could decrease its gross profits and net income |
| Costs of Mailing, Paper and Printing |
| Postal rate increases and paper and printing costs will affect the cost of the Company’s catalog and promotional mailings and sales and marketing expenses |
| The Company relies on discounts from the basic postal rate structure, such as discounts for bulk mailings and sorting by zip code and carrier routes |
| Future paper and postal rate increases could adversely impact the Company’s earnings if it was unable to offset such increases by raising prices or by implementing more efficient printing, mailing, delivery and order fulfillment systems |
| Intellectual Property Rights Risks |
| The Company’s trademarks are important to its success and competitive position |
| The Company is the owner or exclusive licensee in the United States of the marks “Jos |
| ” These trademarks are registered in the United States Patent and Trademark Office |
| The Company is susceptible to others imitating its products and infringing on its intellectual property rights |
| Imitation or counterfeiting of the Company’s products or other infringement of its intellectual property rights could diminish the value of its brand or otherwise adversely affect its revenues |
| The actions the Company has taken to establish and protect its trademarks may not be adequate to prevent imitation of its products by others or to prevent others from seeking to invalidate the Company’s trademarks or block sales of its products as a violation of the trademarks and intellectual property rights of others |
| In addition, others may assert rights in, or ownership of, the Company’s trademarks and other intellectual property rights or in marks that are similar to the Company’s or marks that the Company licenses and/or market and the Company may not be able to successfully resolve these types of conflicts to its satisfaction |
| In some cases, there may be trademark owners who have prior rights to the Company’s marks because the laws of certain foreign countries may not protect intellectual property rights to the same extent as do the laws of the United States |
| Failure to protect the Company’s trademarks could result in a material adverse effect on its business |
| The Company is not aware of any claims of infringement or other material challenges to the Company’s right to use its marks in the United States |
| Use of Consumer Information |
| The Company uses its customer database to market to its customers |
| Any limitations imposed on the use of such consumer data, whether imposed by federal or state governments or business partners, could have an adverse effect on the Company’s future marketing activity |
| In addition, to the extent the Company’s security procedures and protection of customer information prove to be insufficient or inadequate, the Company may become subject to litigation, which could expose the Company to liability and cause damage to its reputation or brand |
| The distribution of the Company’s products is centralized in two distribution centers in Hampstead, Maryland |
| All of the merchandise the Company purchases is shipped directly to its distribution centers, where it is prepared for shipment to the appropriate stores |
| If the distribution centers were to shut down or lose significant capacity for any reason, the Company’s operations would likely be seriously disrupted |
| As a result, the Company could incur significantly higher 14 ______________________________________________________________________ costs and longer lead times associated with distributing its products to its stores during the time it takes for the Company to reopen or replace the distribution centers |
| Seasonality |
| The Company’s net sales, net income and inventory levels fluctuate on a seasonal basis |
| The Company has increased its marketing efforts during peak selling times and expanded its inventory to include more Corporate Casual and Sportswear, resulting in profits generated during the fourth quarter holiday season becoming a larger portion of annual profits |
| Seasonality is also impacted by growth as more new stores are opened in the second half of the year |
| Seasonal fluctuations typically affect the Company’s inventory levels, with higher inventory carried in advance of peak selling periods, including the holiday season |
| In the fourth quarters of fiscal years 2003, 2004 and 2005, the Company generated approximately 59prca, 51prca and 53prca, respectively, of its annual net income |
| Any decrease in sales or margins during this period could have a disproportionate effect on the Company’s financial condition and results of operations |
| In addition, major winter storms could negatively impact the Company’s sales |