The Next VRX Stock?
Andrew Left of Citron Research is a notorious short seller. He can boast of having been among the first to see that Valeant Pharmaceuticals Intl Inc (NYSE:VRX) stock was about to collapse, and he has a reputation for finding and shorting the hell out of weak stocks. He’s no “Kumbayah”-singing trader. He uses foul, or at the very least colorful (colorfoul?), language to describe stocks he doesn’t like and then he short sells them.
Now, Left has a new target…
The latest object of Andrew Left’s vitriol is Tailored Brands, Inc. (NYSE:TLRD), which owns such brands as Men’s Warehouse and JoS. A. Bank Clothiers. Tailored Brands ripped all of its seams today, losing some 20% of its value after missing on its quarterly results.
It may be premature to speak of Tailored Brands as the next VRX stock, however. The businesses are different, even if at the core they share a penchant for poorly managed acquisitions. Moreover, Valeant is operationally far riskier, given that it operates in the realm of drugs and healthcare, than Tailored Brands.
Nevertheless, it seems that Left and his band of short sellers at Citron have already been shorting the bejesus out of Tailored Brands. Andrew Left compared TLRD stock to Pantone 448, a color euphemistically known as “Opaque Couché,” in a tweet. (Source: “Short seller Andrew Left compared a company to the ‘ugliest color in the world’,” Business Insider, June 9, 2016.)
For the record, most people would simply call that color “barf green.” But is Tailored Brands as bad as that?
For starters, as bad as today’s losses have been, Tailored Brands has lost about 10% year to date. There are many stocks with colors far prettier than barf green that have lost more than Tailored Brands has despite their tremendous upside potential—including GoPro Inc (NASDAQ:GPRO) and LinkedIn Corp. (NASDAQ:LNKD). Those are just the first two that come to mind; they aren’t even the best examples.
No doubt, Tailored Brands missed on its first-quarter earnings and caused TLRD stock to drop in a way that might conjure up images of yellow-brown and muddy-green spots on a used couch. It missed analysts’ expectations by $0.16 per share and the company’s earnings per share (EPS) of $0.29 was rather less than the expected $0.45. Sales dropped 6.4% year-over-year (yoy).
But, really, it could have been worse. Citron and Andrew Left may have exaggerated their nausea over the retailer’s results to help their shorting case.
While the earnings weren’t great, they weren’t as bad as Pantone 448. Same-store sales at the group’s Men’s Warehouse stores fell 3.5% yoy. That may have been one of the key pessimistic factors, because the FactSet consensus was for a 1.7% rise. Yet, JoS. A. Bank Clothiers’ same-store sales dropped 16% yoy, while expectations of a 24% loss were much worse. (Source: “Tailored Brands stock suffers third worst decline on record,” MarketWatch, June 9, 2016.)
The problem is that Tailored Brands has endured a difficult merger between Men’s Warehouse and JoS. A. Bank Clothiers. The latter store relied on big sales, which the new company scrapped, leading to a predictable drop in sales. That move has shown some investors that the company’s new management does not understand the business so well. (Source: “Men’s Warehouse Founder Wants To Buy His Company Back,” Fortune, May 23, 2016.)
One of the main advantages of the current Andrew Left–led “short fest” on Tailored Brands is that it will make it easier for George Zimmer, the former owner of Men’s Warehouse who guaranteed you would look good in the brand’s clothes in TV commercials, to buy back the company. When shareholders heard that possibility, Tailored Brands stock rose 2.3%. It’s a clear sign that the company needs new management and that a solid and profitable core has survived within it.
Andrew Left’s short selling on Tailored Brands might be painful in the short term, but it will make it easier for the solution for better returns to materialize.
Is TLRD stock the next VRX stock? Probably not.