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Jos. A. Bank reports 3Q drop in income

Jos. A. Bank Clothiers Inc. reported an 11.2 percent drop in net income during its fiscal third quarter, and analysts said the numbers reveal possible trouble brewing for the Hampstead-based men’s apparel company.

Total sales at Jos. A. Bank stores increased 11.1 percent in the company’s third quarter, to $232.9 million. But the company has been aggressively discounting to drive those sales.

Net income decreased to $13.3 million in the period ended Oct. 27, 2012, compared with $14.9 million in the corresponding period last year, according to results released Wednesday.

“It was a disappointing third quarter,” said Mark Montagna, an analyst with Avondale Partners LLC who covers specialty retailers. “And the outlook for the fourth quarter is disappointing, as well.”

Diluted earnings per share were 47 cents in the most recent quarter, a decline of 13 percent from 54 cents in the third quarter of 2011 and well below analysts’ expectations of 55 cents on average.

Although the retailer brought in more revenue than in the corresponding period last year, its margins weren’t wide enough to offset higher expenses, largely because of steep discounting, the company said.

The company’s total sales increased by 11.1 percent, hitting $232.9 million compared with $209.6 million in corresponding period of 2011. But the cost of goods climbed 28 percent to $100.2 million — higher prices of cotton and wool are largely to blame, Montagna said — and operating expenses rose 4 percent to $111.5 million.

Comparable stores sales — which measure sales growth attributable to existing stores, as opposed to extra revenue from new locations — rose 4.8 percent. Direct marketing sales rose 25.8 percent.

“We had a decline in our operating income margin due to additional markdowns and promotional activity which were needed to drive these sales,” R. Neal Black, the company’s president and CEO, said in a statement.

“Also, Hurricane Sandy, which hit along the East Coast where the majority of our largest volume regions are located, negatively impacted third-quarter sales, particularly when we ran a big promotion right at the end of the quarter.”

Jos. A. Bank has long been known for its robust promotions, but its discounts have recently gotten steeper, Montagna said. Now, he added, executives must choose whether to continue the promotions in order to hang onto customers or nix the heftiest deals to reverse their losses.

It’s hard to say, Montagna said, what route the company will take.

“That’s what they have to figure out,” he said. “That’s the risk; if you try not to run as steep of a promotion, you could lose customers. … Once you get used to paying a certain price and seeing certain promotions, you may continue to expect that going forward.”

Black, Jos. A. Bank’s CEO, blamed some of the third-quarter results on the distractions of the presidential election. He said these continued to cause problems into November, adding that comparable sales are down this month, as well.

“With the critical month of December still ahead of us, and continued pressure on margins, we remain cautious for the outcome of the fourth quarter,” Black continued.

Although Montagna said the election and hurricane undoubtedly played a direct role, the results weren’t entirely caused by unlucky circumstances over the past few weeks. Net income for the year as a whole is lower than at this point in 2011.

In the first nine months of 2012, net income totaled $51.3 million, a decline of 3.8 percent from the first three quarters of 2011.

The second quarter of 2012 saw a 12.7 percent jump in net income, however, to $23.2 million, compared with the 2011 second quarter.

The second and third quarters of this year both had high results from 2011 to live up to. Montagna said the corresponding periods of last year saw record-high operating margins and total sales. But he said it was difficult to understand why the company managed to post higher earnings per share in the second quarter of this year, yet not in the third quarter.