DL | davianletter.

  Wednesday,  February  15,  2012      

Trying to Make Sense of Jos A. Bank’s Inventory Accounting Disclosures  

  TDL  Research  

An  examination  of  Jos.  A.  Bank  Clothiers,  Inc.’s  (“JOSB”)  10-­‐Q    report  for  the   quarter  ended  April  30,  2011  and  we  found  multiple  inventory  related   disclosures  that  seem  to  directly  contradict  each  other.   For  example,  on  page  13  of  the  10-­‐Q  report,  the  company  disclosed:    “120  basis  point  increase  in  gross  profit  margins  mainly  as  a  result  of  higher   initial  mark-­‐ups  driven  primarily  by  retail  price  increases  in  certain  product   categories  and  improved  sourcing;”   What  does  the  company  mean  by  “improved  sourcing”?  The  rational  conclusion,   when  discussed  in  the  context  of  profit  margins,  is  that  they  were  able  to  get  a   better  deal.   Seems  simple  enough,  except  JOSB  also  stated  on  page  18  of  the  same  10-­‐Q   report:    “Cash  used  in  our  operating  activities  of  $12.9  million  in  the  first  quarter  of  fiscal   year  2011  was  primarily  impacted  by  an  increase  in  operating  working  capital   and  other  operating  items  of  $38.0  million,  partially  offset  by  net  income  of   $17.8  million  and  depreciation  and  amortization  of  $6.2  million.  The  increase  in   operating  working  capital  and  other  operating  items  included  the  following:   • an  increase  in  inventory  of  $28.6  million  primarily  as  a  result  of   the  replenishment  of  units  sold  in  fiscal  2010,  new  store  openings,  continued   sales  growth  and  higher  inventory  sourcing  costs;”   On  page  13  of  the  10-­‐Q  report,  the  company  claimed  that  its  gross  profits   improved,  in  part,  because  of  “improved  sourcing  ….”  However,  on  page  18  of   the  same  10-­‐Q  report,  the  company  seems  to  contradict  itself  by  claiming  that  it   had  “higher  inventory  sourcing  costs”  which  should  decrease  gross  profits.   Jos.  A.  Bank  needs  to  clarify  its  disclosures  to  avoid  confusing  investors  and   alleviate  concerns  about  its  financial  reporting.  It  should  answer  the  following   question:   Are  the  referenced  sourcing  costs  are  the  same  or  different?  How  can  I  tell  as   they  both  seem  to  impact  accounting  items  with  similar  if  not  the  same  effect?   With  their  10-­‐K  report  due  soon,  Jos  A  Bank  should  clarify  its  inventory   disclosures,  and  alleviate  potential  concerns.  

In Focus:
Inventory  accounting  disclosures   do  not  add  up?  



Trying  t o  M ake  S ense  o f   J os  A .  B ank’s  I nventory   Accounting  D isclosures   P a g e  |  1  

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