Securities and Exchange Commission

Washington, D.C. 20549

 

Form 10-K

 

 

 

[Commission file number 0-23874]

 

JOS. A. BANK CLOTHIERS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware		36-3189198
(State of Incorporation)		(I.R.S. Employer Identification No.)
500 Hanover Pike, Hampstead, MD		21074
(Address of principal executive offices)		(zip code)

 

(410) 239-2700

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock (the “Common Stock”) par value $.01 per share; and Rights to purchase units of Series A Preferred Stock

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

 

Yes ý

No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III for this Form 10-K or any amendment to this Form 10-K. o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)

 

Yes ý

No o

 

The aggregate market value of the voting and non-voting stock held by nonaffiliates of the registrant, based upon the closing price of shares of Common Stock on the National Association of Securities Dealers Automated Quotation (“NASDAQ”) National Market System at July 30, 2004 was approximately $284.8 million. The determination of the “affiliate” status for purposes of this report on Form 10-K shall not be deemed a determination as to whether an individual is an “affiliate” of the registrant for any other purposes.

 

The number of shares of Common Stock, par value $0.01 per share, outstanding on April 8, 2005 was 13,466,546.

 

DOCUMENTS INCORPORATED BY REFERENCE:

 

The Company will disclose the information required under Part III, Items 10-14 either by (a) incorporating the information by reference from the Company’s definitive proxy statement if filed by May 31, 2005 (the first business day following 120 days from the close of its fiscal year ended January 29, 2005) or (b) filing an amendment to this Form 10-K which contains the required information by May 31, 2005 (the first business day following 120 days from the close of the Company’s fiscal year ended January 29, 2005).

 

Index to the exhibits appears on Pages 27 through 29.

 

 

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

 

This Annual Report on Form 10-K includes and incorporates by reference certain statements that may be deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements so long as such information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information. When used in this Annual Report on Form 10-K, the words “estimate,” “project,” “plan,” “will,” “anticipate,” “expect,” “intend,” “outlook,” “may,” “believe,” and other similar expressions are intended to identify forward-looking statements and information. Actual results may differ materially from those forecast due to a variety of factors outside of the Company’s control that can affect the Company’s operating results, liquidity and financial condition.  Such factors include risks associated with economic, weather, public health and other factors affecting consumer spending, the ability of the Company to finance its expansion plans, the mix and pricing of goods sold, the market price of key raw materials such as wool and cotton, availability of lease sites for new stores, the ability to source product from its global supplier base and other competitive 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, and assumes no obligation to update any of the forward-looking statements. Such risk factors are more fully described under the caption “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The Company cautions that the foregoing list of important factors is not exclusive.

 

Common Stock Dividends.  On January 13, 2004, the Company’s Board of Directors declared a 50% common stock dividend payable on February 18, 2004 to stockholders of record as of January 30, 2004.  On June 8, 2004, the Company’s Board of Directors declared a 25% common stock dividend payable on August 18, 2004 to stockholders of record as of July 30, 2004.  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 two stock dividends.

 

PART I

 

Item 1.  BUSINESS

 

EXPLANATORY NOTE

 

On February 7, 2005, in a letter to the Center for Public Company Audit Firms-American Institute of Certified Public Accountants (the “SEC Letter”), the Chief Accountant of the Securities and Exchange Commission (the “SEC”) expressed the views of the SEC staff concerning certain operating lease accounting issues and their application under generally accepted accounting principles (“GAAP”).  Specifically, the SEC Letter addressed the appropriate accounting for: (1) the amortization of leasehold improvements by a lessee in an operating lease with lease renewals, (2) the pattern of recognition of rent when the lease term in an operating lease contains a period where there are free or reduced rents (commonly referred to as “rent holidays”), and (3) incentives related to leasehold improvements provided by a landlord/lessor to a tenant/lessee in an operating lease. Like many other companies in the retail industry, the Company has re-evaluated its lease accounting practices in light of the SEC Letter.

 

As previously disclosed in the Company’s Current Report on Form 8-K dated February 25, 2005, the Company’s Audit Committee concluded that the financial statements included in the Company’s Annual Report on Form 10-K for fiscal years 2002 and 2003, as well as those in the Company’s Quarterly Reports on Form 10-Q for the quarters ended May 1, 2004, July 31, 2004 and October 30, 2004, should no longer be relied upon and that the Company should restate its financial statements for the two-year period ended January 31, 2004 and for the first three quarters of fiscal 2004.

 

This Annual Report on Form 10-K gives effect to the restatement of the consolidated financial statements for the years ended February 3, 2001 (fiscal 2000), February 2, 2002 (fiscal 2001), February 1, 2003 (fiscal 2002) and January 31, 2004 (fiscal 2003), for the first three quarters of fiscal 2004 and for all four quarters of fiscal 2003 to reflect the revision to its historical practices of accounting for lease transactions, as discussed in Note 2 to the Consolidated Financial Statements.

 

Amortization of Leasehold Improvements- In order to comply with GAAP regarding amortization of leasehold improvements discussed in the SEC Letter, the Company revised the straight-line rent schedules for thirteen of its stores to achieve consistency with the corresponding leasehold amortization schedules.

 

1

 

Rent Holidays- In the SEC Letter, the SEC staff reiterated that GAAP requires rent holidays in an operating lease should be recognized by the lessee on a straight-line basis over the lease term (including any rent holiday period).  In prior periods, the Company had generally recognized the straight-line expense for a lease beginning on the date the store opened, which was generally the date the lease term commenced in accordance with the lease.  The period during which the store was being constructed was excluded from the straight-line rent schedule because the construction period was not considered to be part of the lease term in accordance with the lease.  Based on our re-evaluation, the Company has concluded that the construction period should be included in the straight-line rent schedule.

 

As a result of the change of its rent schedules, the Company has restated the Consolidated Financial Statements for fiscal 2000, fiscal 2001, fiscal 2002, fiscal 2003, for the first three quarters of fiscal 2004 and for all four quarters of fiscal 2003.  The changes are inclusive of the immaterial changes resulting from the modification of the rent schedules to achieve consistency with the corresponding leasehold amortization schedules, as set forth above.

 

Landlord Contributions- Leasehold improvement incentives provided by a landlord to the Company were previously recorded by the Company as a reduction of the property, plant and equipment account on its balance sheet and amortized as a reduction to depreciation expense in its income statement.  However, GAAP requires that such incentives should be recorded as deferred rent and amortized as reductions to lease expense.  As a result, the Company’s property, plant and equipment asset account and deferred rent liability account were increased which required increases to cash flows provided by operating activities and cash flows used for investing activities in equal amounts.  Accordingly, the Company has restated the consolidated financial statements for fiscal 2000, 2001, 2002, 2003, for the first three quarters of fiscal 2004 and for all four quarters of fiscal 2003.  These landlord contributions will be amortized over the life of the lease as a reduction to rent expense.

 

The impact of the restatement on the Consolidated Balance Sheet as of January 31, 2004 was an increase in the total property, plant and equipment account of $13.1 million and an increase in the deferred rent liability account of $14.8 million. The impact of the restatement is a decrease in net income of $.1 million, $.1 million, $.1 million and $.3 million for fiscal years 2000, 2001, 2002 and 2003, respectively, from amounts previously reported.  The restatement decreased reported diluted earnings per share by $0.01, $0.01, $0.01 and $0.03 for fiscal years 2000, 2001, 2002 and 2003, respectively.  The cumulative effect of the restatement for all years prior to fiscal 2000 was $.4 million, which was recorded as an adjustment to opening retained earnings at January 30, 2000.  The restatement also had a cumulative increase to deferred income taxes of $.7 million as of January 31, 2004.  The restatement did not have any impact on our previously reported sales or comparable store sales or on our compliance with any financial covenant under our line of credit facility or other debt instruments.  The restatement also decreased reported diluted earnings per share by $0.01, $0.01 and $0.02 for the first, second and third quarters of fiscal 2004, respectively.

 

The Company has not amended and does not intend to amend its previously-filed Annual Reports on Form 10-K or its Quarterly Reports on Form 10-Q for the periods affected by the restatement, including without limitation for the periods ended May 1, 2004, July 31, 2004 and October 30, 2004.  For this reason, the consolidated financial statements, auditors’ reports and related financial information for the affected periods contained in such reports should no longer be relied upon.

 

General

 

Jos. 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 269 retail stores (as of January 29, 2005 and including seven outlet stores and ten franchise stores) located throughout 37 states and the District of Columbia in the United States, as well as through the Company’s nationwide catalog and internet (www.josbank.com) operations.

 

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 vendors, suppliers 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 February 1, 2003, January 31, 2004 and January 29, 2005 are hereinafter referred to as fiscal 2002, fiscal 2003 and fiscal 2004, respectively.

 

2

 

Strategy

 

The Company, established in 1905, has reinvented itself over the past five years by focusing on its “Four Pillars of Success”:

 

1.             Quality

 

2.             Service

 

3.             Inventory In-stock

 

4.             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 includes:

 

•      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;

 

•      expanding its product assortment, including developing the “Three Levels of Luxury” and continuing to add innovative new products;

 

•      increasing its product design capabilities while eliminating the middleman in the sourcing of its products; and

 

•      providing outstanding customer service and emphasizing high levels of inventory fulfillment for its customers.

 

The Brand.  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, 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 in its existing markets and by entering new markets.  As part of its plan to increase the chain to approximately 500 stores by 2007, the Company opened 25 new stores in fiscal 2002, 50 new stores in fiscal 2003 and 60 new stores in fiscal 2004. 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, as well as in new markets such as the western part of the United States. The Company opened its first stores in the states of Washington and Nebraska in fiscal 2004 and in California, Nevada, Arkansas and West Virginia in fiscal 2003.

 

3

 

Product Design and Sourcing.  The Company has increased its design capabilities in the past five years and now designs 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 (e.g. agents, importers, brokers) in its sourcing process and contracts directly with manufacturers. 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 13 of its Consolidated Financial Statements.

 

Stores.  The Company’s store segment includes all Company-owned stores except for 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 60 stores in fiscal 2004 and expects to accelerate the pace of store openings in subsequent years, including plans to open between 60 to 75 stores in fiscal 2005 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. The specialty centers include, but are not limited to, outdoor lifestyle centers, malls and financial districts. The Company prefers outdoor lifestyle centers as the key real estate environment for new stores.  As of January 29, 2005, the store mix of the 252 full-line Company-owned stores (excluding seven factory stores and ten franchise stores) consisted of 69 outdoor lifestyle centers, 63 malls, 20 financial districts and 100 strip centers, power centers or freestanding stores.

 

The Company’s new 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. In the stores that have been opened in the last two fiscal years, approximately 80% of a store’s space is dedicated to selling activities, with the remainder allocated to stockroom, tailoring and other support areas. The Company expects that substantially all future stores will vary in size from approximately 3,500 to 5,500 square feet depending on the market. The full-line stores averaged approximately 5,120 square feet at the end of fiscal 2004. The stores opened in fiscal 2003 and fiscal 2004 averaged approximately 4,400 and 4,350 square feet, respectively.

 

The cost to open a new store is based on store size and landlord construction allowances. In fiscal 2004, the average cost to build a new store was approximately $440,000, including leasehold improvements, fixtures, point-of-sale equipment and tailor shop equipment. The Company will be reimbursed approximately $205,000 per store of the new store build-out cost.  New stores also require an inventory investment of approximately $300,000 to offer a full range of products, with higher inventory levels during certain peak periods. The inventory levels in a new store are typically increased as the store’s sales mature.

 

Substantially all stores have a tailor shop which provides a range of tailoring services as a convenience to its 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 the number of tailors 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.

 

The Company has ten 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 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 stores and has not been required to sell significant amounts of inventory to third party liquidators.

 

4

 

At April 8, 2005, the Company operated 273 retail stores (including seven factory stores and ten franchise stores) in 37 states and the District of Columbia. The following table sets forth the stores that were open at such date.

 

JOS. A. BANK STORES

 

 

(a)           Includes one or more franchise stores

(b)           Includes one or more factory stores

 

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 accounted for approximately 11% of net sales in fiscal 2003 and 11% of net sales in fiscal 2004. The direct marketing segment recorded a sales increase of 22.7% in fiscal 2004. The Company’s direct marketing segment offers potential and existing customers convenience in ordering the Company’s merchandise. In fiscal 2003 and fiscal 2004, the Company distributed approximately 7.8 and 9.2 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. A. Bank products. 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 becoming increasingly more comfortable purchasing traditional business attire through the catalog and internet, as suits represented approximately 20% of net sales in the direct marketing segment in fiscal 2004.

 

To make catalog shopping as convenient as possible, the Company maintains a toll-free telephone number accessible 24 hours a day, seven days a week. The Company uses on-line computer terminals to enter customer orders and to retrieve information about merchandise and its availability. 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 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 over 3,000 affiliate arrangements which has helped increase internet sales. The Company typically pays a fee to the affiliate based on a percentage of net sales generated through such affiliate. In November 2002, the Company created an affiliate arrangement with Amazon.com and in September 2004, the Company created an affiliate arrangement with QVC.com.  The Company expects to continue to pursue affiliate arrangements to help fuel future internet sales increases.

 

5

 

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 on-line 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 on-line 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 all files, including the Company’s customer mailing list, 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 warehouse. 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.

 

Merchandising

 

The Company believes it fills a niche of providing upscale classic, professional men’s clothing with impeccable 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. A. Bank label. Its product offering includes tuxedos, suits, shirts, vests, ties, sport coats, pants, sportswear, overcoats, sweaters, belts and braces, socks and underwear. The Company also sells branded shoes from several vendors, which are the only products it sells not using the Jos. A. Bank brand.

 

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 26% of the Company’s net sales in fiscal 2004 and 27% in 2003, and serve as the foundation to the Company’s extensive offering of other products. As the corporate work environment trended to casual wear in recent years, the Company’s product offering was modified to meet the needs of the Jos. A. Bank customer.

 

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 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 line, 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. Jos. 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 TRIO and Separate lines accounted for approximately 43% of suit sales in fiscal 2004.

 

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 product 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.

 

6

 

Design and Purchasing

 

Jos. 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 12 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 in terms of 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, either domestically or abroad.  Since the Company’s designs are focused on updated classic clothing, the Company experiences much less fashion risk than other retailers.  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 U.S. and overseas shirt manufacturers who also supply shirts to many of the Company’s competitors. In fiscal 2002, the Company began using one agent to source a significant portion of its product that comes from certain countries in or near Asia.

 

Approximately 10% of the total product purchases (including piece goods) in fiscal 2004 were sourced from United States suppliers, and approximately 90% were sourced from suppliers in other countries. In fiscal 2004, approximately 27% of the total product purchases were manufactured in China (including 12% from Hong Kong) and 18% in Mexico. No other country represented more than 10% of total product purchases in fiscal 2004.

 

Also as discussed above, the Company uses an agent to source a 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 29% of the total product purchases in fiscal 2004. The Company also makes other purchases from manufacturers and suppliers in Asia.  Two other suppliers combined represent approximately 15% of total product purchases in fiscal 2004.

 

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. Total raw materials represented approximately 10% of the total product purchases made by the Company. In fiscal 2004, five vendors accounted for over 86% 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 $9 million of wool through fiscal 2004 at a specified price. A portion of the commitment extended into 2005; however the total amount of the commitment did not change. The Company ordinarily places orders for the purchase of inventory approximately six to twelve months in advance.

 

In 2003, the Company implemented two new information systems that increased its ability to communicate design specifications to its worldwide vendor base and to increase its ability to manage the status of raw materials and production in plants around the world.

 

The Company does business with all of its vendors in U.S. 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.

 

Marketing, Advertising and Promotion

 

Strategy.  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 has also begun sending email promotions to its store and internet customers in the past several years.  Core to each marketing campaign, while primarily promotional, is the identification of the Jos. A. Bank name as synonymous with high quality, upscale classic clothing offered at a value. The Company has a database of over 2.2 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 1.4 million individuals have made such purchases or information requests in the past 24 months. The Company evaluates its database for mailing and selects names based on expectations of response to specific promotions which allows the Company to efficiently use its advertising dollars.

 

7

 

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 expects to continue testing these channels as alternative methods 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