**United States Securities and Exchange Commission**

**Washington, DC 20549**

 

**FORM 10-Q**

 
| **ý** | **Quarterly  report pursuant to Section 13 or 15(d) of the Securities Exchange Act of  1934**  |
|------------|-----------------------------------------------------------------------------------------------------|
|       |                                                                                                |
|       | **For the  quarterly period ended October 30, 2004.**                                          |
|       |                                                                                                |
| **or**     |
|       |                                                                                                |
|       | **Transition  report pursuant to Section 13 or 15(d) of the Securities Exchange Act of  1934** |
|       |                                                                                                |
|       | **Commission  File Number     0-23874**                                    |

 

**Jos. A. Bank Clothiers, Inc.**

(Exact name of registrant as specified in its charter)

 
| **Delaware**                                             | ** ** | **36-3189198**   |
|----------------------------------------------------------|------------|------------------|
| (State incorporation)                                    |       | (I.R.S. Employer |
|                                                     |       | Identification   |
|                                                     |       | Number)          |
|                                                     |       |             |
| **500 Hanover Pike, Hampstead, MD**                      | ** ** | **21074-2095**   |
| (Address of Principal Executive Offices)                 |       | (Zip Code)       |
|                                                     |       |             |
| **410-239-2700**                                         |
| (Registrant’s telephone number including area code) |

 

**None**

(Former name or former address, if changed since last report)

 

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

 

Yes ý   No o

 

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Exchange ActRule 12b-2)

 

Yes ý   No o

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date:

 

| **Class**                     | ** ** | **Outstanding as of December 1, 2004** |
|-------------------------------|------------|---------------------------------------------|
|                          |       |                                        |
| Common Stock,  $.01 par value |       | 13,394,608                                  |

 

 

----

 

Jos. A. Bank Clothiers, Inc.

 

Index

 
|       |                                                  |                                                                                        | **Page No.** |
|------------|-------------------------------------------------------|---------------------------------------------------------------------------------------------|--------------|
| Part I.    | Financial  Information                                | 3                                                                                           |
|       |                                                  |                                                                                        |         |
|       | Item 1.                                               | Condensed Consolidated Financial Statements (unaudited)                                     | 3            |
|       |                                                  |                                                                                        |         |
|       | Condensed  Consolidated Statements                    |                                                                                        |
|       |                                                  | of Income –  Three and Nine Months ended                                               |         |
|       |                                                  | November 1,  2003 and October 30, 2004                                            | 3            |
|       |                                                  |                                                                                        |         |
|       | Condensed  Consolidated Balance                       |                                                                                        |
|       |                                                  | Sheets – as of January 31,  2004 and                                              |         |
|       |                                                  | October 30,  2004                                                                      | 4            |
|       |                                                  |                                                                                        |         |
|       | Condensed  Consolidated Statements                    |                                                                                        |
|       |                                                  | of Cash  Flows – Nine Months ended                                                     |         |
|       |                                                  | November 1,  2003 and October 30, 2004                                            | 5            |
|       |                                                  |                                                                                        |         |
|       | Notes to Condensed  Consolidated Financial Statements | 6                                                                                           |
|       |                                                  |                                                                                        |         |
|       | Item 2.                                               | Management’s Discussion and Analysis of Results  of Operations and Financial Condition | 12           |
|       |                                                  |                                                                                        |         |
|       | Item 3.                                               | Quantitative and Qualitative Disclosures about  Market Risk                                 | 19           |
|       |                                                  |                                                                                        |         |
|       | Item 4.                                               | Controls and Procedures                                                                     | 19           |
|       |                                                  |                                                                                        |         |
| Part II.   | Other  Information                                    | 20                                                                                          |
|       |                                                  |                                                                                        |         |
|       | Item  1.                                              | Legal  Proceedings                                                                          | 20           |
|       |                                                  |                                                                                        |         |
|       | Item 6.                                               | Exhibits and  Reports on Form 8-K                                                           | 20           |
|       |                                                  |                                                                                        |         |
| Signatures | 20                                                    |

 

2

----

 

**PART I.****                                                    FINANCIALINFORMATION**

 

**Item 1.****           CondensedConsolidated Financial Statements**

 

**JOS.****A. BANKCLOTHIERS, INC. AND SUBSIDIARIES**

**Condensed Consolidated Statements of Income**

(In thousands except per share data)

(Unaudited)

 
| ** **                               | ** ** | **Three Months Ended**    | ** ** | **Nine Months Ended**     | ** ** |
|------------------------------------------|------------|---------------------------|------------|---------------------------|------------|
| ** **                               | ** ** | **November 1, 2003** | ** ** | **October 30, 2004** | ** ** | **November 1, 2003** | ** ** | **October 30, 2004** | ** ** |
|                                     |       |                      |       |                      |       |   |   |   |   |
| Net sales                                | ** ** | **$**                     | 72,011     | ** **                | **$**      | **82,634** | ** ** | **$** | 198,725 | ** ** | **$** | **244,557** | ** ** |
| Cost of goods sold                       |       | 30,439                    | ** ** | **34,094**                |       | 86,418 | ** ** | **97,871** | ** ** |
| Gross Profit                             |       | 41,572                    | ** ** | **48,540**                |       | 112,307 | ** ** | **146,686** | ** ** |
| ** **                               | ** ** | ** **                | ** ** | ** **                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating expenses:                      | ** ** | ** **                | ** ** | ** **                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Sales and marketing                      |       | 27,498                    | ** ** | **34,266**                |       | 75,859 | ** ** | **96,928** | ** ** |
| General and administrative               |       | 7,946                     | ** ** | **8,436**                 |       | 21,865 | ** ** | **27,273** | ** ** |
| Store opening costs                      |       | 626                       | ** ** | **346**                   |       | 1,218 | ** ** | **846** | ** ** |
| Total operating expenses                 |       | 36,070                    | ** ** | **43,048**                |       | 98,942 | ** ** | **125,047** | ** ** |
| ** **                               | ** ** | ** **                | ** ** | ** **                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating income                         |       | 5,502                     | ** ** | **5,492**                 |       | 13,365 | ** ** | **21,639** | ** ** |
| ** **                               | ** ** | ** **                | ** ** | ** **                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest expense, net                    |       | 466                       | ** ** | **449**                   |       | 1,151 | ** ** | **1,363** | ** ** |
| ** **                               | ** ** | ** **                | ** ** | ** **                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income before provision for income taxes |       | 5,036                     | ** ** | **5,043**                 |       | 12,214 | ** ** | **20,276** | ** ** |
| Provision for income taxes               |       | 2,173                     | ** ** | **1,629**                 |       | 5,191 | ** ** | **7,998** | ** ** |
| ** **                               | ** ** | ** **                | ** ** | ** **                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income                               | ** ** | **$**                     | 2,863      | ** **                | **$**      | **3,414** | ** ** | **$** | 7,023 | ** ** | **$** | **12,278** | ** ** |
| ** **                               | ** ** | ** **                | ** ** | ** **                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Earnings per share:                      | ** ** | ** **                | ** ** | ** **                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income:                              | ** ** | ** **                | ** ** | ** **                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                    | ** ** | **$**                     | 0.23       | ** **                | **$**      | **0.25** | ** ** | **$** | 0.59 | ** ** | **$** | **0.92** | ** ** |
| Diluted                                  | ** ** | **$**                     | 0.20       | ** **                | **$**      | **0.24** | ** ** | **$** | 0.51 | ** ** | **$** | **0.86** | ** ** |
| Weighted average shares outstanding:     | ** ** | ** **                | ** ** | ** **                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                    |       | 12,566                    | ** ** | **13,395**                |       | 11,955 | ** ** | **13,324** | ** ** |
| Diluted                                  |       | 14,081                    | ** ** | **14,285**                |       | 13,819 | ** ** | **14,231** | ** ** |

 

See accompanying notes.

 

3

----

 

**JOS.****A. BANK CLOTHIERS, INC. AND SUBSIDIARIES**

**Condensed Consolidated Balance Sheets**

(In Thousands)

(Unaudited)

 
| ** **                                       | ** ** | **January 31,  2004** |    | **October 30,  2004** | ** ** |
|--------------------------------------------------|------------|----------------------------|---------|----------------------------|------------|
| **ASSETS**                                       | ** ** | ** **                 |    | ** **                 | ** ** |
| CURRENT ASSETS:                                  | ** ** | ** **                 |    | ** **                 | ** ** |
| Cash and cash equivalents                        |       | $                          | 875     |                       | **$**      | **1,252** | ** ** |
| Accounts receivable, net                         |       | 4,201                      |    | **6,059**                  | ** ** |
| Inventories:                                     | ** ** | ** **                 |    | ** **                 | ** ** |
| Raw materials                                    |       | 11,652                     |    | **7,727**                  | ** ** |
| Finished goods                                   |       | 109,136                    |    | **123,764**                | ** ** |
| Total inventories, net                           |       | 120,788                    |    | **131,491**                | ** ** |
| ** **                                       | ** ** | ** **                 |    | ** **                 | ** ** |
| Prepaid expenses and other  current assets       |       | 10,323                     |    | **15,837**                 | ** ** |
| Total current assets                             |       | 136,187                    |    | **154,639**                | ** ** |
| ** **                                       | ** ** | ** **                 |    | ** **                 | ** ** |
| NONCURRENT ASSETS:                               | ** ** | ** **                 |    | ** **                 | ** ** |
| Property, plant and equipment,  net              |       | 47,401                     |    | **56,027**                 | ** ** |
| Deferred financing and other noncurrent assets   |       | 1,235                      |    | **1,043**                  | ** ** |
| Deferred income taxes                            |       | 1,688                      |    | **1,791**                  | ** ** |
| Total assets                                     |       | $                          | 186,511 |                       | **$**      | **213,500** | ** ** |
| ** **                                       | ** ** | ** **                 |    | ** **                 | ** ** |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**   | ** ** | ** **                 |    | ** **                 | ** ** |
| ** **                                       | ** ** | ** **                 |    | ** **                 | ** ** |
| CURRENT LIABILITIES:                             | ** ** | ** **                 |    | ** **                 | ** ** |
| Accounts payable                                 |       | $                          | 28,748  |                       | **$**      | **29,687** | ** ** |
| Accrued expenses and other                       |       | 32,677                     |    | **32,447**                 | ** ** |
| Current portion of long-term  debt               |       | 1,245                      |    | **912**                    | ** ** |
| Deferred income tax                              |       | 1,308                      |    | **2,332**                  | ** ** |
| Total current liabilities                        |       | 63,978                     |    | **65,378**                 | ** ** |
| ** **                                       | ** ** | ** **                 |    | ** **                 | ** ** |
| NONCURRENT LIABILITIES:                          | ** ** | ** **                 |    | ** **                 | ** ** |
| Long-term debt, net of current  portion          |       | 28,618                     |    | **39,773**                 | ** ** |
| Deferred rent and other noncurrent liabilities   |       | 6,413                      |    | **5,996**                  | ** ** |
| Total liabilities                                |       | 99,009                     |    | **111,147**                | ** ** |
| ** **                                       | ** ** | ** **                 |    | ** **                 | ** ** |
| STOCKHOLDERS’ EQUITY:                       | ** ** | ** **                 |    | ** **                 | ** ** |
| Common stock                                     |       | 122                        |    | **124**                    | ** ** |
| Additional paid-in capital                       |       | 64,207                     |    | **66,778**                 | ** ** |
| Retained earnings                                |       | 28,231                     |    | **40,509**                 | ** ** |
|                                             | ** ** | 92,560                     |    | **107,411**                | ** ** |
| Treasury stock                                   |       | (5,058                     | )       | **(5,058**                 | **)**      |
| Total stockholders’ equity                  |       | 87,502                     |    | **102,353**                | ** ** |
| Total liabilities and  stockholders’ equity |       | $                          | 186,511 |                       | **$**      | **213,500** | ** ** |

 

See accompanying notes.

 

4

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**JOS.****A. BANK CLOTHIERS, INC. AND SUBSIDIARIES**

**Condensed Consolidated Statements of Cash Flows**

(In Thousands)

(Unaudited)

 
| ** **                                                                                   | ** ** | **Nine Months Ended**     | ** ** |
|----------------------------------------------------------------------------------------------|------------|---------------------------|------------|
| ** **                                                                                   | ** ** | **November 1, 2003** |       | **October 30, 2004** | ** ** |
|                                                                                         |       |                      |       |   |   |
| Cash flows from operating activities:                                                        | ** ** | ** **                |       | ** ** | ** ** |
| Net income                                                                                   |       | $                         | 7,023      |   | **$** | **12,278** | ** ** |
| Adjustments to reconcile net income to net cash  provided by (used in) operating activities: | ** ** | ** **                |       | ** ** | ** ** |
| Increase in net deferred tax liability                                                       |       | —                    |       | **921** | ** ** |
| Depreciation and amortization                                                                |       | 5,142                     |       | **5,867** | ** ** |
| Net (increase) in operating working capital and  other                                       |       | (49,788                   | )          | **(19,988** | **)** |
| ** **                                                                                   | ** ** | ** **                |       | ** ** | ** ** |
| **Net cash (used in) operating activities**                                                  | ** ** | (37,623                   | )          | **(922** | **)** |
| ** **                                                                                   | ** ** | ** **                |       | ** ** | ** ** |
| Cash flows from investing activities:                                                        | ** ** | ** **                |       | ** ** | ** ** |
| Additions to property, plant and equipment                                                   |       | (12,714                   | )          | **(12,947** | **)** |
| Proceeds from disposal of assets                                                             |       | —                    |       | **851** | ** ** |
| ** **                                                                                   | ** ** | ** **                |       | ** ** | ** ** |
| **Net cash (used in) investing activities**                                                  |       | (12,714                   | )          | **(12,096** | **)** |
| ** **                                                                                   | ** ** | ** **                |       | ** ** | ** ** |
| Cash flows from financing activities:                                                        | ** ** | ** **                |       | ** ** | ** ** |
| Borrowings under long-term Credit Agreement                                                  |       | 71,463                    |       | **75,377** | ** ** |
| Repayments under long-term Credit Agreement                                                  |       | (31,705                   | )          | **(62,374** | **)** |
| Repayment of other long-term debt                                                            |       | (884                      | )          | **(2,181** | **)** |
| Net proceeds from issuance of common stock                                                   |       | 3,656                     |       | **2,573** | ** ** |
| ** **                                                                                   | ** ** | ** **                |       | ** ** | ** ** |
| **Net cash provided by financing activities**                                                | ** ** | 42,530                    |       | **13,395** | ** ** |
| ** **                                                                                   | ** ** | ** **                |       | ** ** | ** ** |
| Net (decrease) increase in cash and cash equivalents                                         |       | (7,807                    | )          | **377** | ** ** |
| ** **                                                                                   | ** ** | ** **                |       | ** ** | ** ** |
| Cash and cash equivalents – beginning of period                                         |       | 8,389                     |       | **875** | ** ** |
| ** **                                                                                   | ** ** | ** **                |       | ** ** | ** ** |
| Cash and cash equivalents – end of period                                               |       | $                         | 582        |   | **$** | **1,252** | ** ** |

 

See accompanying notes.

 

5

----

 

**NOTES TO CONDENSED CONSOLIDATED****FINANCIAL STATEMENTS**

(Unaudited)

(Amounts in Thousands ExceptPer Share Amounts and the Number of Stores)

 

**1.****                          BASISOF PRESENTATION**

 

Jos. A. Bank Clothiers, Inc. (the “Company”) is anationwide retailer of classic men’s clothing through conventional retailstores and catalog and internet direct marketing.  The consolidated financial statements includethe accounts of the Company and its wholly-owned subsidiaries.  All significant intercompanybalances and transactions have been eliminated in consolidation.

 

The results of operations for the interim periodsshown in this report are not necessarily indicative of results to be expectedfor the fiscal year.  In the opinion ofmanagement, the information contained herein reflects all adjustments necessaryto make the results of operations for the interim periods a fair statement of theoperating results for these periods. These adjustments are of a normal recurring nature.

 

Certain notes and other information have beencondensed or omitted from the interim financial statements presented in thisQuarterly Report on Form 10-Q.  Therefore, these financial statements shouldbe read in conjunction with the Company’s January 31, 2004 Annual Reporton Form 10-K.

 

**2.****                          SIGNIFICANTACCOUNTING POLICIES**

 

**Inventories** - The Companyrecords inventory at the lower of cost or market (“LCM”). Cost is determinedusing the first-in, first-out method. The Company capitalizes into inventorycertain warehousing and freight delivery costs associated with shipping itsmerchandise to the point of sale.

 

**Franchise Fees** – Monthlyfranchise fees are recognized when earned under the franchise agreements, whichis at the time the franchisee generates a sale. The fees are based on a percentage of sales generated by the franchisestores.  Initial franchise fees are fullyearned upon execution of the franchise agreements and there are no furtherobligations on the part of the Company in order to earn the initial franchisefee.

 

The Company does not have any controlling interest inany of its franchisees through voting rights or any other means and, inaccordance with the revised Financial Accounting Standards Board InterpretationNo. 46, “Consolidation of Variable Interest Entities”, does not consolidatethese entities.

 

**Gift Certificates and Cards**– The Company’s apparel incentive gift certificates are used by variouscompanies as a reward for achievement for their employees. The Company alsoredeems proprietary gift certificates and gift cards marketed by majorpremium/incentive companies.  The Companyrecords a liability when a gift certificate/card is purchased.  As the certificate/card is redeemed by acustomer, the Company reduces the liability and credits a sale.

 

**Vendor Rebates**- The Companyreceives credits from vendors in connection with inventory purchases.  The credits are separately negotiated witheach vendor.  Substantially all of these

 

6

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credits are earned in one of twoways: a) as a fixed percentage of purchases when an invoice is paid or b) as anagreed-upon amount in the month a new store is opened.  There are no contingent minimum purchaseamounts, milestones or other contingencies that are required to be met to earnthe credits.  The credits described in a)above are recorded as a reduction to inventories in the Balance Sheet as theinventories are purchased and the credits described in b) above are recorded asa reduction to inventories as new stores are opened.  In both cases, the credits are recognized asreductions to cost of goods sold as the product is sold.

 

**Landlord Contributions** -Landlord contributions are accounted for as a credit to property, plant andequipment and as a debit to prepaid and other current assets untilcollected.  To the extent that the landlordcontribution exceeds the cost of leasehold improvements of a specific newstore, the excess is recorded as a liability in deferred rent and other noncurrent liabilities. The credits are amortized over the life of the lease in a manner that isconsistent with the Company’s policy to straight-line rent expense over theterm of the lease.  The amortization isrecorded to sales and marketing expense which is consistent with theclassification of lease expense.

 

**Catalog** - Costs related to mail order catalogs, including design, printingand distribution, are included in prepaid expenses and other current assetsconsistent with Statement of Position No. 93-7, “Reporting on Advertising Costs”.  These costs are amortized based on actualrevenue for the period as compared to aggregate projected revenue over thebenefit period in which customers order from a particular catalog, which istypically four months.  The benefitperiod is based on historical ordering patterns.  As of January 31, 2004 and October 30,2004, the amounts included in prepaid expenses and other current assets relatedto catalog costs were $1.1 million and $1.4 million, respectively.

 

**Contingent Rental Expense** – TheCompany has certain store leases that determine all or a portion of its rentbased on annual aggregate sales from that store.  The Company recognizes contingent rentalexpense prior to achievement of the specified target that triggers thecontingent rental provided that achievement of that target is probable.  The amount is recorded on a straight-linebasis throughout the year.

 

***Stock Option Plan*** -The Company applies the intrinsic-value-based method of accounting prescribedby Accounting Principles Board (“APB”) Opinion No. 25, “Accounting forStock Issued to Employees”, and related interpretations including FinancialAccounting Standards Board Interpretation No. 44, “Accounting for Certain TransactionsInvolving Stock Compensation”, issued in March 2000, to account for itsfixed-plan stock options.  Under thismethod, compensation expense is recorded on the date of grant only if the then-currentmarket price of the underlying stock exceeds the exercise price. Historically,the Company has issued all options at the market price on the date ofgrant.  There was no stock-basedcompensation expense recognized in the statement of income for the periodsended November 1, 2003 and October 30, 2004. Statement of FinancialAccounting Standards (“SFAS”) No. 123, “Accountingfor Stock-Based Compensation” as amended by SFAS No.148, “Accounting for Stock Based Compensation-Transition and Disclosure”,established accounting and disclosure requirements using a fair-value-basedmethod of accounting for stock-based employee compensation plans.  As allowed by SFASNo. 123, the Company has elected to continue to apply the intrinsic-value-basedmethod of accounting described above, and has adopted only the disclosurerequirements of SFAS No. 123 as amended by SFAS No. 148.  Thefollowing table illustrates the effect on net income if the fair-value-basedmethod had been applied to all outstanding and unvested awards in each quarterand compensation expense had been recorded:

 

7

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| ** **                                                                                                                   | ** ** | **Three  Months Ended**    | ** ** | **Nine  Months Ended**     | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                                                                                                   | ** ** | **November 1,  2003** | ** ** | **October 30,  2004** | ** ** | **November 1,  2003** | ** ** | **October 30,  2004** | ** ** |
| ** **                                                                                                                   | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income as reported                                                                                                       |       | $                          | 2,863      | ** **                 | **$**      | **3,414** |   | $ | 7,023 | ** ** | **$** | **12,278** | ** ** |
| ** **                                                                                                                   | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Deduct total stock-based  employee compensation expense determined under fair-value-based method for all  awards, net of tax |       | 1,237                      | ** ** | **252**                    |       | 2,157 | ** ** | **478** | ** ** |
| ** **                                                                                                                   | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Pro forma net income                                                                                                         |       | $                          | 1,626      | ** **                 | **$**      | **3,162** |   | $ | 4,866 | ** ** | **$** | **11,800** | ** ** |
| ** **                                                                                                                   | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Pro forma basic net income per  common share                                                                                 |       | $                          | 0.13       | ** **                 | **$**      | **0.24** |   | $ | 0.41 | ** ** | **$** | **0.89** | ** ** |
| ** **                                                                                                                   | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Pro forma diluted net income  per common share                                                                               |       | $                          | 0.12       | ** **                 | **$**      | **0.22** |   | $ | 0.35 | ** ** | **$** | **0.83** | ** ** |

 

The fair value of eachstock option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following weightedaverage assumption used for grants in:

 
| ** **                    | ** ** | **Three  Months Ended**    | ** ** | **Nine  Months Ended**     | ** ** |
|-------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                    | ** ** | **November 1,  2003** | ** ** | **October 30,  2004** | ** ** | **November 1,  2003** | ** ** | **October 30,  2004** | ** ** |
| ** **                    | ** ** | ** **                 |       | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Risk free interest rate       |       | 3.5%                       |       | **2.9% - 3.2%**            | ** ** | 3.3% - 3.9% |   | **2.9% - 3.2%** | ** ** |
| Expected volatility           |       | 54%                        |       | **49% - 50%**              | ** ** | 54% |   | **49% - 50%** | ** ** |
| Expected life                 |       | 3 Years                    |       | **3 Years**                | ** ** | 1 - 7 Years |   | **3 Years** | ** ** |
| Contractual life              |       | 1 - 10 Years               |       | **1 – 10 Years**      | ** ** | 1 - 10 Years |   | **1 – 10 Years** | ** ** |
| Expected dividend yield       |       | — %                   |       | **— %**               | ** ** | — % |   | **—%** | ** ** |
| Fair value of options granted |       | $9.48                      |       | **$8.81 - $10.04**         | ** ** | $5.46 - $10.68 |   | **$8.81 - $10.04** | ** ** |
| # of options granted          |       | 187.5                      |       | **29.6**                   | ** ** | 574 |   | **29.6** | ** ** |

 

**Incentive Plans** – Incentiveplans provide cash incentive compensation to certain employees based upon theattainment of certain earnings and performance goals, as well as certaindiscretionary goals.  At eachquarter-end, the Company estimates the probability that such goals will beattained based on results-to-date and the likelihood of discretionarypayments.  Each quarter, the Companyexpenses incentive compensation to be paid for such quarter.  Any additional incentive compensation whichis likely to be paid for the year is expensed based on the proportion of theearnings-to-date to projected annual earnings.

 

**Reclassifications** – Certainreclassifications have been made to the November 1, 2003 financialstatements in order to conform to the October 30, 2004 presentation. TheCompany reclassified sales and related costs for new stores between the Storesand Direct Marketing segments in Note 5 to this Form 10-Q.

 

8

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**3.****                          SUPPLEMENTALCASH FLOW DISCLOSURE:**

 

**Operating Working Capital and Other Components:**

The net change in operating working capital and other componentsconsist of the following:

 
| ** **                                             | ** ** | **Nine Months Ended**     | ** ** |
|--------------------------------------------------------|------------|---------------------------|------------|
| ** **                                             | ** ** | **November 1, 2003** | ** ** | **October 30, 2004** | ** ** |
|                                                   |       |                      |       |   |   |
| (Increase) in accounts receivable, net                 |       | $                         | (3,544     | ) | **$** | **(1,858** | **)** |
| (Increase) in inventories                              |       | (51,322                   | )          | **(10,703** | **)** |
| (Increase) in prepaids and  other assets               |       | (1,701                    | )          | **(5,322** | **)** |
| Increase in accounts payable                           |       | 5,946                     |       | **939** | ** ** |
| Decrease in accrued expenses and other liabilities     |       | 833                       |       | **(3,044** | **)** |
|                                                   |       |                      |       | ** ** | ** ** |
| Net (increase) in operating working capital and  other | ** ** | **$**                     | (49,788    | ) | **$** | **(19,988** | **)** |

 

**Interest and Income Taxes Paid:**

Interest and income taxes paid were as follows:

 

| ** **        | ** ** | **Nine Months Ended  November 1, 2003** | ** ** | **Nine Months Ended  October 30, 2004** | ** ** |
|-------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| ** **        | ** ** | ** **                                   | ** ** | ** **                                   | ** ** |
| Interest paid     |       | $                                            | 1,025      | ** **                                   | **$**      | **1,440** | ** ** |
| Income taxes paid |       | $                                            | 5,420      | ** **                                   | **$**      | **12,896** | ** ** |

 

**4.****                          EARNINGSPER SHARE**

 

Basicnet income per share is calculated by dividing net income by the weightedaverage number of common shares outstanding for the year.  Diluted net income per share is calculated bydividing net income by the diluted weighted average common shares, whichreflect the potential dilution of stock options. The weighted average sharesused to calculate basic and diluted earnings per share are as follows:

 
| ** **                                      | ** ** | **Three Months Ended**    | ** ** | **Nine Months Ended**     | ** ** |
|-------------------------------------------------|------------|---------------------------|------------|---------------------------|------------|
| ** **                                      | ** ** | **November 1, 2003** | ** ** | **October 30, 2004** | ** ** | **November 1, 2003** | ** ** | **October 30, 2004** | ** ** |
|                                            |       |                      |       |                      |       |   |   |   |   |
| Weighted average shares outstanding for basic   |       | 12,566                    | ** ** | **13,395**                |       | 11,955 | ** ** | **13,324** | ** ** |
|                                            |       |                      |       |                      |       |   |   |   |   |
| Dilutive effect of stock options                |       | 1,515                     | ** ** | **890**                   |       | 1,864 | ** ** | **907** | ** ** |
|                                            |       |                      |       |                      |       |   |   |   |   |
| Weighted average shares outstanding for diluted |       | 14,081                    | ** ** | **14,285**                |       | 13,819 | ** ** | **14,231** | ** ** |

 

TheCompany uses the treasury method for calculating the dilutive effect of stockoptions.  There were no anti-dilutiveoptions as of October 30, 2004.

 

9

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**5.****                          SEGMENTREPORTING**

 

The Company has two reportable segments: stores anddirect marketing.  While each segmentoffers a similar mix of men’s clothing to the retail customer, the full line storesalso provide alterations.

 

The accounting policies of the segments are the sameas those described in the Company’s January 31, 2004 Annual Report on Form10-K and within these notes.  The Companyevaluates performance of the segments based on “four wall” contribution whichexcludes any allocation of “management company” costs, distribution centercosts (except order fulfillment costs which are allocated to direct marketing),interest and income taxes.

 

The Company’s segments are strategic business unitsthat offer similar products to the retail customer by two distinctivelydifferent methods.  In stores the typicalcustomer travels to the store and purchases men’s clothing and/or alterationsand takes their purchases with them.  Thedirect marketing customer receives a catalog in his or her home and/or officeand/or visits our web page via the internet and places an order by phone, mail,fax or on line. The merchandise is then shipped to the customer. Segment data ispresented in the following table:

 

**Three months ended October 30,2004**

 
| ** **                    | ** ** | **Stores** | ** ** | **Direct Marketing** | ** ** | **Other** | ** ** | **Total** | ** ** |
|-------------------------------|------------|------------|------------|----------------------|------------|-----------|------------|-----------|------------|
|                          |       |       |       |                 |       |      |       |      |       |
| Net sales (a)                 |       | $          | 71,282     |                 | $          | 8,612     |       | $         | 2,740      |   | $ | 82,634 |   |
| Depreciation and amortization |       | 1,578      |       | 17                   |       | 444       |       | 2,039     |       |
| Operating income (b)          |       | 11,813     |       | 2,554                |       | (8,875    | )          | 5,492     |       |
| Capital expenditures (d)      |       | 6,616      |       | 5                    |       | 649       |       | 7,270     |       |
|                               |            |            |            |                      |            |           |            |           |            |  |  |  |  |

 

Three months ended November 1,2003

 
| ** **                    | ** ** | **Stores** | ** ** | **Direct Marketing** | ** ** | **Other** | ** ** | **Total** | ** ** |
|-------------------------------|------------|------------|------------|----------------------|------------|-----------|------------|-----------|------------|
|                          |       |       |       |                 |       |      |       |      |       |
| Net sales (a)                 |       | $          | 61,735     |                 | $          | 7,245     |       | $         | 3,031      |   | $ | 72,011 |   |
| Depreciation and amortization |       | 1,290      |       | 17                   |       | 715       |       | 2,022     |       |
| Operating income (b)          |       | 12,343     |       | 2,005                |       | (8,846    | )          | 5,502     |       |
| Capital expenditures (d)      |       | 3,419      |       | 0                    |       | 351       |       | 3,770     |       |
|                               |            |            |            |                      |            |           |            |           |            |  |  |  |  |

 

**NineMonths ended October 30, 2004**

 
| ** **                    | ** ** | **Stores** | ** ** | **Direct Marketing** | ** ** | **Other** | ** ** | **Total** | ** ** |
|-------------------------------|------------|------------|------------|----------------------|------------|-----------|------------|-----------|------------|
|                          |       |       |       |                 |       |      |       |      |       |
| Net sales (a)                 |       | $          | 212,062    |                 | $          | 25,188    |       | $         | 7,307      |   | $ | 244,557 |   |
| Depreciation and amortization |       | 4,382      |       | 51                   |       | 1,434     |       | 5,867     |       |
| Operating income (b)          |       | 41,194     |       | 8,248                |       | (27,803   | )          | 21,639    |       |
| Identifiable assets (c)       |       | 152,759    |       | 22,735               |       | 38,006    |       | 213,500   |       |
| Capital expenditures (d)      |       | 11,949     |       | 18                   |       | 980       |       | 12,947    |       |
|                               |            |            |            |                      |            |           |            |           |            |  |  |  |  |

 

Nine Months ended November 1,2003

 
| ** **                    | ** ** | **Stores** | ** ** | **Direct Marketing** | ** ** | **Other** | ** ** | **Total** | ** ** |
|-------------------------------|------------|------------|------------|----------------------|------------|-----------|------------|-----------|------------|
|                          |       |       |       |                 |       |      |       |      |       |
| Net sales (a)                 |       | $          | 170,008    |                 | $          | 21,259    |       | $         | 7,458      |   | $ | 198,725 |   |
| Depreciation and amortization |       | 3,538      |       | 48                   |       | 1,556     |       | 5,142     |       |
| Operating income (b)          |       | 31,488     |       | 6,529                |       | (24,652   | )          | 13,365    |       |
| Capital expenditures (d)      |       | 10,494     |       | 6                    |       | 2,214     |       | 12,714    |       |
|                               |            |            |            |                      |            |           |            |           |            |  |  |  |  |

 

10

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(a)          Direct marketing net sales represent catalog and internet sales includingcatalog orders placed in new stores.  Netsales from operating segments below the quantitative thresholds for determiningreportable segments are attributable primarily to factory stores, franchisestores and regional tailor shops.  Noneof these operating segments have ever met any of the quantitative thresholdsfor determining reportable segments and are included in “other”.

(b)         Operating income for Stores and Direct Marketingsegments represents profit before allocations of overhead from the corporateoffice and the distribution center (which are included in the “other” segment),interest and income taxes.  TotalOperating Income represents profit before interest and income taxes.

(c)          Identifiable assets include cash and cashequivalents, accounts receivable, inventories, prepaid expenses and othercurrent assets and property, plant and equipment residing in or related to thereportable segment. Assets which have not been assigned to one of thereportable segments are included in Other are primarily cash and cashequivalents, property, plant and equipment associated with the corporate officeand distribution center, deferred tax assets, and inventories.

(d)         Capital expenditures include purchases ofproperty, plant and equipment made for the reportable segment.

 

**6.****                          COMMONSTOCK DIVIDENDS**

 

On January 13, 2004, the Company’sBoard 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 Boardof Directors declared a 25% common stock dividend payable on August 18,2004 to stockholders of record as of July 30, 2004.

 

Unless otherwise indicated, allhistorical weighted average share and per share amounts and all references tothe number of common shares elsewhere in the consolidated financial statements,and notes thereto, have been restated to reflect the two stock dividends.

 

**7.****                          LEGALMATTERS**

 

On September 15, 2004, the Company filed a Form8-K, Item 8.01, disclosing that the Company entered into an agreement with theNew York State Attorney General to comply with applicable law regarding itsadvertising practices in New York and to pay the amount of $475,000.  The Company previously recorded a losscontingency in this amount as a general and administrative expense in itsStatement of Income for the fiscal second quarter ended July 31, 2004.  The $475,000 was paid during the thirdquarter ended October 30, 2004.

 

11

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**Item 2****.****                                   Management’sDiscussion and Analysis of Results of Operations and Financial****Condition**

 

The following discussion should be read in conjunctionwith the attached condensed consolidated financial statements and notes theretoand with the Company’s audited financial statements and notes thereto includedin its Annual Report on Form 10-K for the fiscal year ended January 31,2004.

 

**Overview** - For the third quarterof the Company’s fiscal year ending January 29, 2005 (“fiscal 2004”), theCompany’s net income increased to $3.4 million compared with net income of $2.9million for the third quarter of the Company’s fiscal year ended January 31,2004 (“fiscal 2003”). The Company earned $0.24 per diluted share in the third quarterof fiscal 2004 compared with $0.20 per diluted share in the third quarter offiscal 2003, an increase of 20%.  Theincreased earnings were primarily attributable to a 15% increase in net sales anda 100 basis point increase in gross profit margins.  The sales increase was driven principally bysales in the new stores opened since the end of the third quarter of 2003, a..4% comparable store sales increase and a 19 % increase in direct marketingsales.

 

Management believes that the chain cangrow to approximately 500 stores from the fiscal 2003 year-end base of 210stores.  The Company expects to open approximately60 stores in 2004, including 43 that were opened in the first nine months of theyear, and 60 to 75 stores each year thereafter to grow the chain to the 500store level. The store growth is part of a strategic plan the Company initiatedin fiscal 2000.  In the past four years,the Company has continued to increase the amount of store openings as itsinfrastructure and operating performance improved.

 

Capital expenditures should beapproximately $20 million in fiscal 2004, primarily to fund the opening of approximately60 new stores, the renovation and/or relocation of two stores, an expansion indistribution center capacity, and the implementation of various systemsinitiatives.  Consistent with priorperiods, these amounts will be mostly paid in the current year with somepayments extending into the subsequent year. The Company expects to fund all of its growthprogram in 2004 with cash from operations, while using borrowings under its revolverduring the year to fund any required seasonal increases in cash needs.

 

**CommonStock Dividends****- On January 13,2004, the Company’s Board of Directors declared a 50% common stock dividendpayable on February 18, 2004 to stockholders of record as of January 30,2004.

 

On June 8, 2004, the Company’s Boardof Directors declared a 25% common stock dividend payable on August 18,2004 to stockholders of record as of July 30, 2004.

 

Unless otherwise indicated, allhistorical weighted average share and per share amounts and all references tothe number of common shares elsewhere in the consolidated financial statements,and notes thereto, have been restated to reflect the two stock dividends.

 

**Criticalaccounting policies and estimates**– In preparing theconsolidated financial statements, a number of assumptions and estimates aremade that, in the judgment of management, are proper in light of existinggeneral economic and company-specific circumstances. For a detailed discussionon the application of this and other accounting policies, see Note 1 in theConsolidated Financial Statements in the Company’s January 31, 2004 AnnualReport on Form 10-K.

 

12

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*Inventory.* The Companyrecords inventory at the lower of cost or market (“LCM”). Cost is determinedusing the first-in, first-out method.  The estimated market value is based on assumptions for future demand andrelated pricing. The Company reduces the carrying value of inventory to netrealizable value where cost exceeds estimated selling price less costs ofdisposal.

 

Management’ssales assumptions are based on the Company’s experience that historically mostof the Company’s inventory is sold through the Company’s primary sales channelswith virtually no inventory being liquidated through bulk sales to thirdparties. The Company’s LCM reserve estimates for inventory that have been madein the past have been very reliable as a significant portion of its sales(approximately 65% in fiscal 2003) are classic traditional products that areon-going programs and that bear low risk of write-down.  These products include items such as navy andgrey suits, navy blazers, white and blue button-down shirts, etc.  The portion of the products that haveseasonal or fashion elements are monitored closely to ensure that aging goals areachieved to limit the need to sell significant amounts of product belowcost.  In addition, the Company’s stronggross profit margins enable the Company to sell substantially all of itsproducts at levels above cost.

 

Tocalculate the estimated market value, the Company periodically performs a detailedreview of all of its major inventory classes and stock-keeping units.  The Company compares the on-hand units andseason-to-date unit sales (including actual selling prices) to the sales trendand estimated prices required to sell the units in the future, which enablesthe Company to estimate the amount which may have to be sold below cost.  Substantially all units sold below cost aresold in the Company’s factory stores within twenty-four months ofpurchase.  In fiscal 2003, the Company’scosts in excess of selling price plus the cost of disposal in its factorystores was $1.1 million.  The inventorycomponent of these costs is recorded in cost of goods sold whereas the relatedcosts of disposal are recorded as selling and marketing expenses.  The Company anticipates similar results infiscal 2004.  If the inventory requiredto be sold through the factory stores or liquidated through other means variesfrom the estimate, the Company’s LCM reserve could change.

 

*Asset Valuation.* Long-livedassets, such as property, plant and equipment subject to depreciation, are periodicallyreviewed for impairment to determine whether events or changes in circumstancesindicate that the carrying amount of an asset may not be recoverable. Recoverabilityof assets to be held and used is measured by a comparison of the carryingamount of an asset to estimated undiscounted future cash flows expected to begenerated by the asset. If the carrying amount of an asset exceeds itsestimated future cash flows, an impairment charge is recognized in the amountby which the carrying amount of the asset exceeds the fair value of the asset.  The asset valuation estimate is principallydependent on the Company’s ability to generate profits at both the Company andstore levels.  These levels areprincipally driven by the sales and gross profit trends that are closelymonitored by the Company.  In each offiscal years 2002 and 2003 the asset valuation charges have been less than$100,000 as sales and profits have increased throughout this period.     There were no asset valuation chargestaken for the nine month periods ended November 1, 2003 and October 30,2004.

 

While the Company hastaken reasonable care in preparing these estimates and making these judgments, actualresults could and probably will differ from the estimates.  Management believes any difference in theactual results from the estimates will not have a material effect upon theCompany’s financial position or results of operations.

 

13

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**Results of Operations**

 

Thefollowing table is derived from the Company’s Consolidated Statements of Incomeand sets forth, for the periods indicated, the items included in theConsolidated Statements of Income expressed as a percentage of net sales.

 
| ** **                               | ** ** | **Percentage of Net Sales** | ** ** | **Percentage of Net Sales** | ** ** |
|------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                               | ** ** | **Three Months Ended**      | ** ** | **Nine Months Ended**       | ** ** |
| ** **                               | ** ** | **November 1, 2003**   | ** ** | **October 30, 2004**   | ** ** | **November 1, 2003** | ** ** | **October 30, 2004** | ** ** |
|                                     |       |                        |       |                        |       |   |   |   |   |
| Net sales                                |       | 100.0                       | %          | **100.0**                   | **%**      | 100.0 | % | **100.0** | **%** |
| Cost of goods sold                       |       | 42.3                        |       | **41.3**                    | ** ** | 43.5 |   | **40.0** | ** ** |
| ** **                               | ** ** | ** **                  |       | ** **                  | ** ** | ** ** |   | ** ** | ** ** |
| Gross profit                             |       | 57.7                        |       | **58.7**                    | ** ** | 56.5 |   | **60.0** | ** ** |
| General and administrative expenses      |       | 11.0                        |       | **10.2**                    | ** ** | 11.0 |   | **11.2** | ** ** |
| Sales and marketing expenses             |       | 38.2                        |       | **41.5**                    | ** ** | 38.2 |   | **39.6** | ** ** |
| Store opening costs                      |       | 0.9                         |       | **0.4**                     | ** ** | 0.6 |   | **0.3** | ** ** |
| ** **                               | ** ** | ** **                  |       | ** **                  | ** ** | ** ** |   | ** ** | ** ** |
| Operating income                         |       | 7.6                         |       | **6.6**                     | ** ** | 6.7 |   | **8.8** | ** ** |
| Interest expense, net                    |       | 0.6                         |       | **0.5**                     | ** ** | 0.6 |   | **0.6** | ** ** |
| Income before provision for income taxes |       | 7.0                         |       | **6.1**                     | ** ** | 6.1 |   | **8.3** | ** ** |
| Provision for income taxes               |       | 3.0                         |       | **2.0**                     | ** ** | 2.6 |   | **3.3** | ** ** |
| Net income                               |       | 4.0                         | %          | **4.1**                     | **%**      | 3.5 | % | **5.0** | **%** |

 

**Net sales**- Net salesincreased 15% to $82.6 million in the third quarter of fiscal 2004 comparedwith $72.0 million in the third quarter of fiscal 2003.  Net sales for the first nine months of fiscal2004 increased 23% to $244.6 million, compared with $198.7 million in the firstnine months of fiscal 2003.  The salesincrease was primarily related to increases in store sales (including newstores that have been opened as shown below) and in direct marketingsales.  Comparable store sales increased .4%and 7.9% in the third quarter and first nine months of fiscal 2004,respectively.  For comparable stores, theaverage dollars per transaction (“DPT”) increased in thenine months ended October 30, 2004 and decreased in the third quarter offiscal 2004.  The increased average DPT for the nine month period was partially the result ofincreased sales of higher-priced Signature and Signature Gold products.  The lower DPT inthe third quarter was partially related to a higher percentage of warm weatherclearance goods sold.  Due to the warmweather and other factors, cold weather and other high dollar fall items didnot sell well in the latter part of the quarter. The Company expects theaverage DPT to increase in the future.  Traffic increased in both the third quarterand first nine months of 2004.

 

Allmajor product categories generated sales increases in the third quarter and firstnine months of fiscal 2004, lead by sales of sportswear which increased over 23%and 35%, respectively.  In the thirdquarter of 2004, sales increases were lead by gains in sales of sportswear,shirts and ties.  Sales of the moreluxurious Signature and Signature Gold suits, which represented 37% of suitsales in the first nine months of fiscal 2004, increased over 35% in thatperiod as compared with the same period last year.

 

The Company expectsfourth quarter fiscal 2004 sales to increase over the same period of fiscal2003 as a result of the additional new stores and the opportunity forcomparable store and direct marketing sales increases.

 

14

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Thefollowing table summarizes store opening and closing activity during therespective periods.

 
| ** **                                 | ** ** | **Three Months Ended**    | ** ** | **Nine Months Ended**     | ** ** |
|--------------------------------------------|------------|---------------------------|------------|---------------------------|------------|
| ** **                                 | ** ** | **November 1, 2003** | ** ** | **October 30, 2004** | ** ** | **November 1, 2003** | ** ** | **October 30, 2004** | ** ** |
| ** **                                 | ** ** | ** **                | ** ** | **Square**                | ** ** | ** ** | ** ** | **Square** | ** ** | ** ** | ** ** | **Square** | ** ** | ** ** | ** ** | **Square** | ** ** |
| ** **                                 | ** ** | **Stores**                | ** ** | **Feet***                 | ** ** | **Stores** | ** ** | **Feet*** | ** ** | **Stores** | ** ** | **Feet*** | ** ** | **Stores** | ** ** | **Feet*** | ** ** |
|                                       |       |                      |       |                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Stores open at the beginning of the period |       | 181                       |       | 940                       |       | **229** | ** ** | **1,139** |   | 160 |   | 846 |   | **210** | ** ** | **1,062** | ** ** |
| Stores opened                              |       | 25                        |       | 105                       |       | **23** | ** ** | **98** |   | 46 |   | 199 |   | **43** | ** ** | **180** | ** ** |
| Stores closed                              |       | —                    |       | —                    |       | **—** | ** ** | **—** |   | — |   | — |   | **(1** | **)** | **(5** | **)** |
| Stores open at the end of the period       |       | 206                       |       | 1,045                     |       | **252** | ** ** | **1,237** |   | 206 |   | 1,045 |   | **252** | ** ** | **1,237** | ** ** |

 

----

*square feet is gross squarefeet presented in thousands and excludes franchise stores

 

**Gross profit**- Gross profit(net sales less cost of goods sold) represented 58.7% of net sales in the thirdquarter of fiscal 2004 compared with 57.7% of net sales in the third quarter offiscal 2003.  For the first nine monthsof fiscal 2004, gross profit represented 60.0% of net sales compared with 56.5%for the same period of fiscal 2003. The increased gross profit percentage isprimarily due to the continued improvement in sourcing of merchandise, thusreducing the cost of items purchased, and increases in retail prices primarily throughthe introduction of new products and management of retail prices.  Gross profit margins increased insubstantially all major product categories in the third quarter ended October 30,2004 versus the same prior year period, except fortailored clothing gross profit margins which decreased during the period.  Tailored clothing gross profit margins haveincreased in the first nine months of fiscal 2004 as compared to the same prioryear period.  The Company believes the grossprofit percentage will increase approximately 100 basis points in the fourthquarter of fiscal 2004 as compared to the same prior year quarter.

 

TheCompany’s gross profit classification may not be comparable to theclassification used by certain other entities. Some entities includedistribution, store occupancy, buying and other costs in cost of goodssold.  Other entities (including theCompany) exclude such costs from gross profit, including them instead in general& administrative and/or sales & marketing expenses.

 

**Sales and Marketing Expenses**– Sales and marketing expenses consist primarily of a) full-line store, factorystore and direct marketing occupancy, payroll, selling and other variable costsand b) total Company advertising, display and marketing expenses.  These expenses increased by $6.8 million and $21.1million in the third quarter and first nine months of fiscal 2004, respectively.

 

Theincrease in sales and marketing expenses in the 47 stores which opened sincethe end of the third quarter of fiscal 2003 plus the incremental increase inexpense in the 46 stores opened throughout the first nine months of 2003 was $5.2million and $15.0 million in the third quarter and nine months ended October 30,2004, respectively.  Sales and marketingexpenses in the stores which were open prior to fiscal 2003 were $1.1 millionand $4.3 million higher in the third quarter and nine months ended October 30,2004, respectively, than in the same periods in fiscal 2003 primarily as aresult of higher sales commissions on higher sales and increased occupancycosts and advertising and display costs. The remaining increases relateprimarily to higher catalog and internet marketing expenses.  The Company expects sales and marketingexpenses to increase in the fourth quarter of fiscal 2004 compared with thefourth quarter of fiscal 2003, primarily as a result of a) opening approximately60 new stores throughout 2004 as discussed earlier, b) the full year operationof stores that were opened during fiscal 2003, and c) an increase inadvertising expenditures, including the expenditure of at least $3.0 millionrelated to

 

15

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image advertising in magazines andon television.  The majority of the imageadvertising expenses will be incurred in the fourth quarter of fiscal 2004.

 

**General and Administrative Expenses**– General and administrative expenses, which consist primarily of corporatepayroll and overhead costs and distribution center costs, increased $.5 millionand $5.4 million in the third quarter and first nine months of fiscal 2004,respectively.  Total corporate payrolland overhead costs excluding incentive compensation costs increased $1.5million and $4.7 million in the third quarter and the first nine months of fiscal2004, respectively.  The increases incorporate payroll and overhead costs were primarily due to higher payroll andpayroll-related costs, travel costs and other expenses related to businessexpansion, and professional fees principally related to internal controldocumentation efforts in compliance with Section 404 of the Sarbanes-OxleyAct of 2002.  Incentive compensationexpense decreased $1.4 million in the third quarter of fiscal 2004 and was flatin the first nine months of fiscal 2004 compared with the same prior yearperiod. The change in incentive compensation in the third quarter of fiscal2004 relative to the same quarter of fiscal 2003 is based upon the projectedannual year end incentive compensation payout for the respective years.

 

Totaldistribution center costs were $1.9 million and $1.5 million in the thirdquarter of 2004 and 2003, and $4.8 million and $4.0 million in the first ninemonths of fiscal 2004 and fiscal 2003, respectively.  The Company expects distribution center coststo increase in the future as it has leased additional warehouse space and itexpects to process an increasing amount of inventory units to support futuregrowth.  Continued growth in the storesand direct marketing segments may result in additional increases in theseexpenses.

 

**Store Opening Costs** – Storeopening costs, which include the initial promotional advertising costs as wellas other start-up costs such as travel for recruitment, training, and setup ofnew stores, declined per store in fiscal 2004 based on the location of newstore openings (which impact the travel incurred for the stores) and planned reducedadvertising for new stores.

 

**Interest Expense, net** –Interest expense increased slightly in the third quarter of fiscal 2004 comparedwith the same period of fiscal 2003.  Theincrease was due primarily to higher borrowing levels under the revolver,primarily related to the opening of new stores and higher interest rates.

 

Interestexpense increased $.2 million to $1.4 million in the first nine months offiscal 2004 from $1.2 million for the same period of 2003.  The increase was due primarily to higherborrowing levels under the revolver, primarily related to the opening of newstores and higher interest rates.

 

**Income Taxes** – The firstnine months of fiscal 2004 effective income tax rate decreased to 39.4%compared with 42.5% in the first nine months of fiscal 2003.  The decrease was primarily due to higher projectedfull year profitability of the Company while non-deductible compensation under Section 162(m) of the Internal Revenue Code is expected to decrease.  The income tax for the third quarter offiscal 2004 includes a reduction of previously recorded income tax liabilitiessettled or otherwise resolved in the third quarter of approximately $.4million.

 

**Liquidity and Capital Resources** - The Company maintains a bank creditagreement (the “Credit Agreement”), which provides for a revolving loan having alimit determined by a formula based on the Company’s inventories and accountsreceivable. In January 2004, the Company extended the maturity date underthe Credit Agreement to April 2008. The amended Credit Agreement increasedthe available maximum revolving amount under the facility up to$100 million. In addition, at any time prior to April

 

16

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30,2006, the Company has the option to increase the amount which may be borrowedto $125 million. The Credit Agreement also includes a) financialcovenants concerning minimum EBITDA,b) limitations on capital expenditures and additional indebtedness andc) a restriction on the payment of dividends. The financial covenants arein effect only if the Company’s availability in excess of outstandingborrowings is less than $7.5 million. The Company does not believe itsavailability in excess of borrowings will be less than $7.5 million duringthe next four quarters.

 

TheCompany’s availability in excess of outstanding borrowings, as supported by theexisting borrowing base under its Credit Agreement, was $56.2 million at October 30,2004 compared with $52.4 million at January 31, 2004.  The October 30, 2004 revolver balancewas $33.6 million compared with $37.6 million at November 1, 2003, as theCompany has funded substantially all of its growth in the past 12 months fromcash from operations.

 

As of October 30,2004, the Company was in compliance with all loan covenants. Interest ratesunder the amended agreement are either at the prime rate or at LIBOR plus 1.5%which is the same rate formula that existed for the same period of fiscal 2003.The agreement also includes provisions for a seasonal over-advance.

 

Thefollowing table summarizes the Company’s sources and uses of funds as reflectedin the Condensed Consolidated Statements of Cash Flows (in thousands):

 
| ** **                                           | ** ** | **Nine Months Ended**     | ** ** |
|------------------------------------------------------|------------|---------------------------|------------|
| ** **                                           | ** ** | **November 1, 2003** | ** ** | **October 30, 2004** | ** ** |
|                                                 |       |                      |       |   |   |
| Cash provided by (used in):                          | ** ** | ** **                | ** ** | ** ** | ** ** |
| Operating activities                                 |       | $                         | (37,623    | ) | **$** | **(922** | **)** |
| Investing activities                                 |       | (12,714                   | )          | **(12,096** | **)** |
| Financing activities                                 |       | 42,530                    |       | **13,395** | ** ** |
| Net increase (decrease) in cash and cash equivalents |       | $                         | (7,807     | ) | **$** | **377** | ** ** |

 

Cash providedby the Company’s operating activities in the first nine months of fiscal 2004 increasedcompared with the first nine months of fiscal 2003 primarily due to lowerexpenditures for inventory compared with the same period of fiscal 2003 andincreased net income.  The net increase ininventory was $10.7 million for the first nine months of fiscal 2004 comparedwith $51.3 million for the same period of fiscal 2003.  The Company increased its inventories in 2003to replenish inventory shortfalls, open new stores, build safety stock andincrease its raw materials purchases. Cash used in investing activities in the first nine months of fiscal 2004relates primarily to capital expenditures for new stores, distribution centerand systems projects and was partially offset by the proceeds from the disposalof certain equipment.  Cash provided byfinancing activities relates primarily to borrowing under the Company’srevolving loan under the Credit Agreement and $2.6 million from the proceeds ofthe exercise of stock options.  Also, theCompany used $2.2 million for the repayment of long-term debt.

 

Managementbelieves that the Company’s cash from operations and availability under itsCredit Agreement will be sufficient to fund its planned capital expendituresand operating expenses for the next four quarters.  For fiscal 2004, the Company expects to spendapproximately $20 million on capital expenditures, primarily to fund theopening of approximately 60 new stores, the renovation and/or relocation of twomajor stores, an expansion of distribution center capacity and theimplementation of various systems initiatives.

 

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Thecost to open new stores is net of negotiated landlord contributions to helpfund the construction of leasehold improvements for new stores.  These amounts are typically paid by thelandlords after the completion of construction by the Company and the receiptof appropriate lien waivers from contractors. The credits recognized in the Consolidated Statements of Income were $0.5million and $0.4 million, respectively, in the third quarter of fiscal 2004 andfiscal 2003 and $1.5 million and $ 1.1 million in the first nine months of fiscal2004 and fiscal 2003.

 

For thestores opened in fiscal 2003 the Company negotiated approximately $9 million oflandlord contributions, substantially all of which has been collected,including approximately $2.4 million which was collected in the first ninemonths of fiscal 2004. The remaining amount is expected to be collected in fiscal2004.  For the stores opened in the firstnine months of fiscal 2004, the Company negotiated approximately $9 million oflandlord contributions, of which $1.3 million was collected in the first ninemonths of fiscal 2004.  The Companyexpects to collect these outstanding amounts over the next four quarters.  Any uncollected amounts are included inprepaid expenses and other current assets.

 

**Disclosures about ContractualObligations and Commercial Commitments**

 

The Company’s principal commitments are non-cancelableoperating leases in connection with its retail stores, certain tailoring spacesand equipment.  Under the terms ofcertain of these leases, the Company is required to pay a base annual rent plusa contingent amount based on sales.  Inaddition, many of these leases include scheduled rent increases.

 

The following table reflects a summary of the Company’scontractual cash obligations and other commercial commitments as of October 30,2004, including amounts paid in the first three quarters of fiscal 2004.

 
| ** **                      | ** ** | **Payments Due by Fiscal Year** | ** ** |
|---------------------------------|------------|---------------------------------|------------|
| ** **                      | ** ** | **(in thousands)**              | ** ** |
| ** **                      | ** ** | **2004**                        | ** ** | **2005-2007** | ** ** | **2008-2009** | ** ** | **Beyond  2009** | ** ** | **Total** | ** ** |
|                            |       |                            |       |   |   |   |   |   |   |   |   |
| Long-term debt                  |       | 2,430                           |       | 3,078 |   | 35,382 |   | 2,035 |   | 42,925 |   |
| Operating leases (a)            |       | 26,256                          |       | 89,017 |   | 49,822 |   | 81,366 |   | 246,461 |   |
| Stand-by Letter-of-credit (b)   |       | 400                             |       | — |   | — |   | — |   | 400 |   |
| Purchase Commitment (c)         |       | 8,956                           |       | — |   | — |   | — |   | 8,956 |   |
| Scheduled Interest Payments (d) |       | 1,815                           |       | 4,302 |   | 710 |   | 290 |   | 7,117 |   |

 

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(a)          Includes various lease agreements for stores tobe opened and equipment placed in service subsequent to October 30,2004.  See Note 8 to January 31,2004 annual report on Form 10-K.

(b)         To secure the payment of rent at one leasedlocation included in “Operating Leases” above and is renewable each yearthrough the end of the lease term (2009).

(c)          The Company generally does not makeunconditional, noncancelable purchasecommitments.  In fiscal 2003, the Companyentered into an agreement with one raw material supplier to purchase aspecified quantity of fabric through fiscal 2004 at a specified price.  This commitment could extend into 2005;however, the amount of the commitment would not change.

(d)         These scheduled interest payments consist ofinterest payments on the outstanding long term debt.  For borrowings under the Company’s revolvingloan agreement, projected interest is calculated based on the outstandingprincipal balance as of October 30, 2004. For borrowings under the Company’s variable rate debt instruments(including the revolving loan agreement), interest is calculated based on theinterest rates in effect on October 30, 2004.  The principal balance of the revolver and allvariable interest rates may, and probably will, vary in future periods.

 

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**Cautionary Statement**

 

TheCompany’s statements concerning future operations contained herein areforward-looking statements within the meaning of the Private SecuritiesLitigation Reform Act of 1995.  Actualresults may differ materially from those forecasted due to a variety of factorsoutside of the Company’s control that can affect the Company’s operatingresults, liquidity and financial condition such as risks associated witheconomic, weather, public health and other factors affecting consumer spending,the ability of the Company to finance its expansion plans, the mix and pricingof 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 fromits global supplier base and other competitive factors. These cautionarystatements qualify all of the forward-looking statements the Company makes herein.The Company cannot assure you that the results or developments anticipated bythe Company will be realized or, even if substantially realized, that thoseresults or developments will result in the expected consequences for theCompany or affect the Company, its business or its operations in the way theCompany expects. The Company cautions you not to place undue reliance on theseforward-looking statements, which speak only as of their respective dates, andassumes no obligation to update any of the forward-looking statements. Theserisks should be carefully reviewed before making any investment decision.

 

**Item 3****.**                                   **Quantitative and Qualitative Disclosures about Market Risk**

 

AtOctober 30, 2004, the Company was not a party to any derivative financialinstruments.  In addition, the Companydoes not believe it is materially at risk for changes in market interest ratesor foreign currency fluctuations. The Company’s interest on borrowings underits Credit Agreement is at a variable rate based on the prime rate or a spreadover the LIBOR.

 

**Item 4****.**                                   **Controls and Procedures**

 

The Company’s management,with the participation of the Company’s Chief Executive Officer and the Company’sChief Financial Officer, has evaluated, in accordance with Rules 13a-15 and15d-15 of the Securities Exchange Act of 1934 (the “Act”), the effectiveness ofthe Company’s disclosure controls and procedures (as defined in Rules 13a-15(e)and 15d-15(e) of the Act) as of the end of the fiscal quarter covered by thisreport. Based on that evaluation, the Company’s Chief Executive Officer andChief Financial Officer have concluded that as of the end of the period coveredby this report the Company’s disclosure controls and procedures are effectiveto provide reasonable assurance that information required to be disclosed bythe Company and its subsidiaries in the reports it files or submits under theAct is recorded, processed, summarized and reported within the time periodsspecified in the SEC’s rules and forms.

 

Therewas no change in the Company’s internal control over financial reporting identifiedin connection with the evaluation required by Rules 13a–15 and 15d-15 of theAct that occurred during the Company’s last fiscal quarter that has materiallyaffected, or is likely to materially affect, the Company’s internal controlover financial reporting.

 

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# **PART II**.                                                OTHER INFORMATION

 

**Item 1.****           LegalProceedings**

 

The Company has been named as a defendant in legalactions arising from its normal business activities.  Although the outcome of these lawsuits orother proceedings against the Company cannot be accurately predicted, theCompany does not expect that any such liability will have a material adverseeffect on the business, net assets or financial position of the Company.

 

**Item 6.****           Exhibitsand Reports on Form 8-K**

 

(a)          Exhibits

 
| 31.1 |   | Certification of  Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a).                                                                             |
|------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2 |   | Certification of  Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a).                                                                             |
| 32.1 |   | Certification by  Chief Executive Officer pursuant to 18 U.S.C. Section 1350,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2 |   | Certification by  Chief Financial Officer pursuant to 18 U.S.C. Section 1350,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

(b)         Reportson form 8-K

 

On September 15, 2004, the Company filed a Form8-K, Item 8.01, disclosing that the Company entered into an agreement with theNew York State Attorney General to comply with applicable law regarding itsadvertising practices in New York and to pay the amount of $475,000.

 

On September 9, 2004,the Company filed a report on Form 8-K, Item 2.02, announcing that on September 9,2004, the Company issued a press release in which the Company announced, amongother things, certain results of operations for its second quarter ended July 31,2004.

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
| Date: December 8,  2004 | Jos. A. Bank  Clothiers, Inc. |
|------------------------------|-------------------------------|
|                         | (Registrant)                  |
|                         |                          |
|                         |  /s/ David  E. Ullman    |   |
|                         | David E. Ullman               |
|                         | Chief Financial  Officer      |

 

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