September 13, 2022
Welcome back, Retail readers.
🚲 Situational awareness: Peloton executive chairman John Foley will bid adieu to the company he co-founded as part of a management shakeup.
1 big thing: Men's Wearhouse parent upgraded
Tailored Brands, the struggling parent of Men's Wearhouse, got a surprise upgrade by S&P Global Ratings from CCC+ to B-, after its operating performance exceeded the rating agency's expectations.
Why it matters: Discretionary spending, particularly on apparel goods, is expected to take a hit, with a number of retailers lowering their forecasts for the remainder of the year, Richard writes.
- But S&P said the Tailored Brands' gains could continue, as it projects sales of more than $2.6 billion and adjusted EBITDA of about $500 million over the next 12 months.
Details: Sales for the trailing 12 months through July increased 65% and adjusted EBITDA improved to $578 million, compared to being in the red by $22 million last year, according to S&P's calculations.
- The company reported free operating cash flow of $250 million over that same 12-month period.
- "Moreover, profitability improved significantly as gross margins increased about 25 percentage points to about 48% compared with 23% in the same period in 2021," it said.
- Tailored Brands also paid off a $103 million priority term loan and a portion of a take-back term loan, it said.
Yes, and: S&P cited pent-up demand, with a return to the office and an increase in weddings in the last year partly contributing to improved performance.
- Operationally, the retailer pivoted to higher full-price selling, versus promotions, along with cost reductions implemented during bankruptcy to improve margins.
Catch up fast: Tailored Brands has been on watch for potential default since it emerged from bankruptcy in December 2020, after filing for Chapter 11 in August of that same year.
- And it remains on the Fitch Ratings Top Market Concern Loans list, which cites issuers most at risk.
- Even before the pandemic the retailer was in need of a makeover, and unveiled a new concept store in early 2021 as part of its turnaround — but that, of course, requires cash.
The bottom line: S&P believes Tailored Brands will continue to perform well — even amid inflation, an economic slowdown, and increased popularity of men's casual wear.
- S&P's "positive outlook" for the business "reflects the potential for an upgrade over the next 12 months."