**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  April 30, 2005.**                                                                 |
|       |                                                                                                                     |
| ** ** | **                   or** |
|       |                                                                                                                     |
| **o**      | **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 itscharter)

 
| **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 mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or if such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

 

| Yes ý | No o |
|------------|------|

 

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

 

| Yes ý | No o |
|------------|------|

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date:

 

| **Class**                    | ** ** | **Outstanding as of June 2, 2005** |
|------------------------------|------------|-----------------------------------------|
|                         |       |                                    |
| Common Stock, $.01 par value |       | 13,562,796                              |

 

 

----

 

Jos. A. Bank Clothiers, Inc.

 

Index

 
| Part I.  | Financial  Information                                                                                                             |                                                                                        |
|---------------|------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|
|          |                                                                                                                               |                                                                                        |   |
|          | Item 1.                                                                                                                            | Condensed Consolidated (unaudited) Financial  Statements                                    |   |
|          |                                                                                                                               |                                                                                        |   |
|          | Condensed  Consolidated Statements of Income – Three Months ended May 1, 2004 (as  restated) and April 30, 2005     |                                                                                        |
|          |                                                                                                                               |                                                                                        |   |
|          | Condensed Consolidated Balance Sheets – as  of January 29, 2005 and April 30, 2005                                  |                                                                                        |
|          |                                                                                                                               |                                                                                        |   |
|          | Condensed Consolidated Statements of Cash  Flows – Three Months ended May 1, 2004 (as restated) and April 30,  2005 |                                                                                        |
|          |                                                                                                                               |                                                                                        |   |
|          | Notes to Condensed Consolidated Financial  Statements                                                                              |                                                                                        |
|          |                                                                                                                               |                                                                                        |   |
|          | Item 2.                                                                                                                            | Management’s  Discussion and Analysis of Results of Operations and Financial Condition |   |
|          |                                                                                                                               |                                                                                        |   |
|          | Item 3.                                                                                                                            | Quantitative  and Qualitative Disclosures about Market Risk                                 |   |
|          |                                                                                                                               |                                                                                        |   |
|          | Item 4.                                                                                                                            | Internal Controls and Procedures                                                            |   |
|          |                                                                                                                               |                                                                                        |   |
| Part II. | Other Information                                                                                                                  |                                                                                        |
|          |                                                                                                                               |                                                                                        |   |
|          | Item 1.                                                                                                                            | Legal Proceedings                                                                           |   |
|          |                                                                                                                               |                                                                                        |   |
|          | Item 6.                                                                                                                            | Exhibits                                                                                    |   |
|          |                                                                                                                               |                                                                                        |   |
| Signatures    |                                                                                                                               |
|               |                                                                                                                                    |                                                                                             |  |  |

 

2

----

 

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

 

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

 

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

**CondensedConsolidated Statements of Income**

(In thousands except per share data)

(Unaudited)

 
| ** **                               | ** ** | **Three Months Ended**         | ** ** |
|------------------------------------------|------------|--------------------------------|------------|
| ** **                               | ** ** | **May 1, 2004**           | ** ** | **April 30, 2005** | ** ** |
| ** **                               | ** ** | **(As Restated, See  Note 3)** | ** ** | ** ** | ** ** |
|                                     |       |                           |       |   |   |
| Net sales                                |       | $                              | 79,929     |   | **$** | **96,575** | ** ** |
|                                     |       |                           |       | ** ** | ** ** |
| Cost of goods sold                       |       | 30,894                         |       | **35,962** | ** ** |
|                                     |       |                           |       | ** ** | ** ** |
| Gross profit                             |       | 49,035                         |       | **60,613** | ** ** |
|                                     |       |                           |       | ** ** | ** ** |
| Operating expenses:                      |       |                           |       | ** ** | ** ** |
| Sales and marketing                      |       | 30,757                         |       | **39,540** | ** ** |
| General and administrative               |       | 8,584                          |       | **9,179** | ** ** |
| Store opening costs                      |       | 231                            |       | **112** | ** ** |
| Total operating expenses                 |       | 39,572                         |       | **48,831** | ** ** |
|                                     |       |                           |       | ** ** | ** ** |
| Operating income                         |       | 9,463                          |       | **11,782** | ** ** |
|                                     |       |                           |       | ** ** | ** ** |
| Interest expense, net                    |       | 481                            |       | **324** | ** ** |
|                                     |       |                           |       | ** ** | ** ** |
| Income before provision for income taxes |       | 8,982                          |       | **11,458** | ** ** |
| Provision for income taxes               |       | 3,711                          |       | **4,721** | ** ** |
|                                     |       |                           |       | ** ** | ** ** |
| Net income                               |       | $                              | 5,271      |   | **$** | **6,737** | ** ** |
|                                     |       |                           |       | ** ** | ** ** |
| Earnings per share:                      |       |                           |       | ** ** | ** ** |
| Net income:                              |       |                           |       | ** ** | ** ** |
| Basic                                    |       | $                              | 0.40       |   | **$** | **0.50** | ** ** |
| Diluted                                  |       | $                              | 0.37       |   | **$** | **0.47** | ** ** |
| Weighted average shares outstanding:     |       |                           |       | ** ** | ** ** |
| Basic                                    |       | 13,246                         |       | **13,471** | ** ** |
| Diluted                                  |       | 14,213                         |       | **14,321** | ** ** |

 

See accompanying notes

 

3

----

 

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

**Condensed Consolidated BalanceSheets**

(In Thousands)

(Unaudited)

 
| ** **                                       | ** ** | **January 29, 2005** | ** ** | **April 30, 2005** | ** ** |
|--------------------------------------------------|------------|---------------------------|------------|-------------------------|------------|
| **ASSETS**                                       |       |                      |       |                    |       |
| CURRENT ASSETS:                                  |       |                      |       |                    |       |
| Cash and cash equivalents                        |       | $                         | 1,425      |                    | **$**      | **2,137** |   |
| Accounts receivable, net                         |       | 4,798                     |       | **9,080**               |       |
| Inventories:                                     |       |                      |       | ** **              |       |
| Raw materials                                    |       | 8,550                     |       | **12,444**              |       |
| Finished goods                                   |       | 119,143                   |       | **132,170**             |       |
| Total inventories                                |       | 127,693                   |       | **144,614**             |       |
| Prepaid expenses and other  current assets       |       | 11,892                    |       | **12,688**              |       |
| Deferred income taxes                            |       | 893                       |       | **—**              |       |
|                                             |       |                      |       | ** **              |       |
| Total current assets                             |       | 146,701                   |       | **168,519**             |       |
|                                             |       |                      |       | ** **              |       |
| NONCURRENT ASSETS:                               |       |                      |       | ** **              |       |
| Property, plant and equipment,  net              |       | 83,621                    |       | **85,672**              |       |
| Other noncurrent assets                          |       | 1,508                     |       | **1,478**               |       |
| Total assets                                     |       | $                         | 231,830    |                    | **$**      | **255,669** |   |
|                                             |       |                      |       | ** **              |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**   |       |                      |       | ** **              |       |
|                                             |       |                      |       | ** **              |       |
| CURRENT LIABILITIES:                             |       |                      |       | ** **              |       |
| Accounts payable                                 |       | $                         | 40,133     |                    | **$**      | **42,724** |   |
| Accrued expenses                                 |       | 37,505                    |       | **33,652**              |       |
| Current portion of long-term  debt               |       | 917                       |       | **933**                 |       |
| Deferred tax liability –  current           |       | —                    |       | **6,169**               |       |
| Total current liabilities                        |       | 78,555                    |       | **83,478**              |       |
|                                             |       |                      |       | ** **              |       |
| NONCURRENT LIABILITIES:                          |       |                      |       | ** **              |       |
| Long-term debt, net of current  portion          |       | 5,942                     |       | **15,709**              |       |
| Noncurrent lease obligations                     |       | 30,318                    |       | **30,354**              |       |
| Deferred tax liability –  noncurrent        |       | 1,753                     |       | **2,960**               |       |
| Other noncurrent liabilities                     |       | 938                       |       | **939**                 |       |
| Total liabilities                                |       | 117,506                   |       | **133,440**             |       |
|                                             |       |                      |       | ** **              |       |
| COMMITMENTS AND CONTINGENCIES                    |       |                      |       | ** **              |       |
|                                             |       |                      |       | ** **              |       |
| STOCKHOLDERS’ EQUITY:                       |       |                      |       | ** **              |       |
| Common Stock                                     |       | 124                       |       | **125**                 |       |
| Additional paid-in capital                       |       | 67,594                    |       | **68,761**              |       |
| Retained earnings                                |       | 51,664                    |       | **58,401**              |       |
|                                             |       | 119,382                   |       | **127,287**             |       |
| Treasury stock                                   |       | (5,058                    | )          | **(5,058**              | )          |
| Total stockholders’ equity                  |       | 114,324                   |       | **122,229**             |       |
| Total liabilities and  stockholders’ equity |       | $                         | 231,830    |                    | **$**      | **255,669** |   |

 

See accompanying notes

 

4

----

 

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

**CondensedConsolidated Statements of Cash Flows**

(In Thousands) (Unaudited)

 
| ** **                                                                     | ** ** | **Three Months Ended**         | ** ** |
|--------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                     | ** ** | **May 1, 2004**           | ** ** | **April 30, 2005** | ** ** |
| ** **                                                                     | ** ** | **(As Restated, See  Note 3)** | ** ** | ** ** | ** ** |
| Cash flows from operating activities:                                          |       |                           |       |   |   |
| Net income                                                                     |       | $                              | 5,271      |   | **$** | **6,737** |   |
| Adjustments to reconcile net income to net  cash used in operating activities: |       |                           |       | ** ** |   |
| Depreciation and amortization                                                  |       | 2,497                          |       | **3,079** |   |
| Loss on disposals of plant and equipment                                       |       | —                         |       | **3** |   |
| Income tax benefit from exercise of stock  options                             |       | —                         |       | **952** |   |
| Net increase in operating working capital                                      |       | (10,120                        | )          | **(14,925** | ) |
|                                                                           |       |                           |       | ** ** |   |
| **Net cash used in****operating activities**                                   |       | (2,352                         | )          | **(4,154** | ) |
|                                                                           |       |                           |       | ** ** |   |
| Cash flows from investing activities:                                          |       |                           |       | ** ** |   |
| Capital expenditures                                                           |       | (4,890                         | )          | **(5,133** | ) |
| Proceeds from disposal of assets                                               |       | 850                            |       | **—** |   |
|                                                                           |       |                           |       | ** ** |   |
| **Net cash used in investing activities**                                      |       | (4,040                         | )          | **(5,133** | ) |
|                                                                           |       |                           |       | ** ** |   |
| Cash flows from financing activities:                                          |       |                           |       | ** ** |   |
| Borrowings under long-term Credit Agreement                                    |       | 27,520                         |       | **24,719** |   |
| Repayments under long-term Credit Agreement                                    |       | (19,869                        | )          | **(14,719** | ) |
| Repayment of other long-term debt                                              |       | (1,652                         | )          | **(217** | ) |
| Net proceeds from issuance of common stock                                     |       | 422                            |       | **216** |   |
|                                                                           |       |                           |       | ** ** |   |
| **Net cash provided by financing activities**                                  |       | 6,421                          |       | **9,999** |   |
|                                                                           |       |                           |       | ** ** |   |
| Net increase in cash and cash equivalents                                      |       | 29                             |       | **712** |   |
|                                                                           |       |                           |       | ** ** |   |
| Cash and cash equivalents – beginning of  period                          |       | 875                            |       | **1,425** |   |
|                                                                           |       |                           |       | ** ** |   |
| Cash and cash equivalents – end of period                                 |       | $                              | 904        |   | **$** | **2,137** |   |

 

See accompanying notes

 

5

----

 

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

(Unaudited)

(Amounts in Thousands Except Per Share Amounts and the Number ofStores)

 

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

 

Jos. A. BankClothiers, Inc. (the “Company”) is a nationwide retailer of classic men’sclothing through conventional retail stores and catalog and internet directmarketing.  The Condensed Consolidated FinancialStatements include the accounts of the Company and its wholly-ownedsubsidiaries.  All significantintercompany balances and transactions have been eliminated in consolidation.

 

The results ofoperations for the interim periods shown in this report are not necessarilyindicative of results to be expected for the fiscal year.  In the opinion of management, the informationcontained herein reflects all adjustments necessary to make the results ofoperations for the interim periods a fair statement of the operating resultsfor these periods.  These adjustments areof a normal recurring nature.

 

The accompanyingunaudited Condensed Consolidated Financial Statements have been prepared inaccordance with generally accepted accounting principles for interim financialinformation and with the instructions to Form 10-Q and Rule 10-01of Regulation S-X and therefore do not include all of the information andfootnotes required by accounting principles accepted in the United States forcomparable annual financial statements.  Certainnotes and other information have been condensed or omitted from the interimfinancial statements presented in this Quarterly Report on Form 10-Q.  Therefore, these financial statements shouldbe read in conjunction with the Company’s Annual Report on Form 10-Kfor the fiscal year ended January 29, 2005.

 

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

 

**Inventories**- The Company records inventory at the lower of cost or market (“LCM”). Cost isdetermined using the first-in, first-out method. The Company capitalizes intoinventory certain warehousing and freight delivery costs associated withshipping its merchandise to the point of sale. The Company periodically reviews quantities of inventories on hand andcompares these amounts to the expected sale of each product.  The Company records a charge to cost of goodssold for the amount required to reduce the carrying value of inventory to netrealizable value.  

 

**VendorRebates**- The Company receives credits from vendors inconnection with inventory purchases.  Thecredits are separately negotiated with each vendor.  Substantially all of these credits are earnedin one of two ways: a) as a fixed percentage of purchases when an invoice ispaid or b) as an agreed-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 Condensed Consolidated BalanceSheet as the inventories are purchased and the credits described in b) aboveare recorded as a 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 accountedfor as an increase to noncurrent lease obligations and as an increase toprepaid and other current assets until collected.  When collected, the Company records cash andreduces the prepaid and other current assets account.  The landlord contributions are presented inthe Condensed Consolidated Statements of Cash Flows as an operatingactivity.  The noncurrent leaseobligations 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 as a reduction to sales and marketing expense which is consistent withthe classification of lease expense.  

 

***StockOption Plan*** - The Company applies theintrinsic-value-based method of accounting prescribed by Accounting PrinciplesBoard (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”,and related interpretations including Financial Accounting Standards BoardInterpretation No. 44, “Accounting for Certain Transactions InvolvingStock Compensation”, issued in March 2000, to account for its fixed-planstock options.  Under this method, compensationexpense is recorded on the date of grant only if the then-current market priceof the underlying stock exceeds the exercise price. Historically, the Companyhas issued all options at the market price on the date of grant.  There was no stock-based compensation expenserecognized in the Condensed Consolidated Statement of Income for the periodsended May 1, 2004 and April 30, 2005. Statement of FinancialAccounting Standards (“SFAS”) No. 123, “Accounting for Stock-BasedCompensation” as amended by SFAS No. 148, “Accounting for Stock BasedCompensation-Transition and Disclosure”, established accounting and disclosurerequirements using a fair-value-based method of accounting for stock-basedemployee compensation plans.  As allowedby SFAS No. 123, the Company has elected to continue to apply theintrinsic-value-based method of accounting described above, and has adoptedonly the disclosure requirements of SFAS No. 123 as amended by SFAS No. 148.  The following table illustrates the effect onnet income if the fair-value-based method had been applied to all outstandingand

 

6

----

 

***unvested awardsin each quarter and compensation expense had been recorded:***

 
| ** **                                                                                                                   | ** ** | **Three Months Ended  May 1, 2004** | ** ** | **Three Months Ended  April 30, 2005** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|---------------------------------------------|------------|
|                                                                                                                         |       |                                     |       |                                        |       |
| Net income as reported                                                                                                       |       | $                                        | 5,271      |                                        | **$**      | **6,737** |   |
|                                                                                                                         |       |                                     |       | ** **                                  |       |
| Deduct total stock-based  employee compensation expense determined under fair-value-based method for  all awards, net of tax |       | 150                                      |       | **80**                                      |       |
| Pro forma net income                                                                                                         |       | $                                        | 5,121      |                                        | **$**      | **6,657** |   |
|                                                                                                                         |       |                                     |       | ** **                                  |       |
| Pro forma basic net income per  common share                                                                                 |       | $                                        | 0.39       |                                        | **$**      | **0.49** |   |
|                                                                                                                         |       |                                     |       | ** **                                  |       |
| Pro forma diluted net income  per common share                                                                               |       | $                                        | 0.36       |                                        | **$**      | **0.46** |   |

 

The fair value of each stock option granted is estimated on the date ofgrant using the Black-Scholes option pricing model with the following weightedaverage assumption used for grants in the first fiscal quarter ended April 30,2005.  For the fiscal quarter ended May 1,2004, there were no stock options granted.

 
| ** **                    | ** ** | **Three Months Ended  May 1, 2004** | ** ** | **Three Months Ended  April 30, 2005** | ** ** |
|-------------------------------|------------|------------------------------------------|------------|---------------------------------------------|------------|
| ** **                    | ** ** | **(no options granted)**                 | ** ** | ** **                                  | ** ** |
| Risk free interest rate       |       | —                                   |       | 3.88                                        | %          |
| Expected volatility           |       | —                                   |       | 34                                          | %          |
| Expected life                 |       | —                                   |       | 3 years                                     |       |
| Contractual life              |       | —                                   |       | 10 years                                    |       |
| Expected dividend yield       |       | —                                   |       | 0.0                                         | %          |
| Fair value of options granted |       | —                                   |       | $                                           | 32.86      |   |
| # of Options granted          |       | —                                   |       | 29                                          |       |
|                               |            |                                          |            |                                             |            |  |

 

**Reclassifications**– Certain amounts in the Condensed Consolidated Financial Statements for thequarter ended May 1, 2004 have been reclassified in order to conform tothe April 30, 2005 presentation. The Company reclassified sales andrelated costs for new stores between the Stores and Direct Marketing segmentsin Note 6 to this Form 10-Q. The Company also reclassified certain amounts of deferred income taxesin the May 1, 2004 financial statements to conform with the April 30,2005 presentation.

 

**3.****                                      RESTATEMENTOF FINANCIAL STATEMENTS**

 

On February 7, 2005, ina letter to the Center for Public Company Audit Firms-American Institute ofCertified Public Accountants (the “SEC Letter”), the Chief Accountant of theSecurities and Exchange Commission (the “SEC”) expressed the views of the SECstaff concerning certain operating lease accounting issues and theirapplication under generally accepted accounting principles (“GAAP”).  Specifically, the SEC Letter addressed the appropriateaccounting for: (1) the amortization of leasehold improvements by a lesseein an operating lease with lease renewals, (2) the pattern of recognitionof rent when the lease term in an operating lease contains a period where thereare free or reduced rents (commonly referred to as “rent holidays”), and (3) incentivesrelated to leasehold improvements provided by a landlord/lessor to atenant/lessee in an operating lease. Like many other companies in the retailindustry, the Company has re-evaluated its lease accounting practices in lightof the SEC Letter.

 

Amortization of LeaseholdImprovements- In order to comply with GAAP regarding amortization of leaseholdimprovements discussed in the SEC Letter, the Company revised the straight-linerent schedules for thirteen of its stores to achieve consistency with thecorresponding leasehold amortization schedules.

 

Rent Holidays- In the SECLetter, the SEC staff reiterated that GAAP requires rent holidays in anoperating lease should be recognized by the lessee on a straight-line basisover the lease term (including any rent holiday period).  In prior periods, the Company had generallyrecognized the straight line expense for a lease beginning on the date thestore opened, which was generally the date the lease term commenced inaccordance with the lease.  The periodduring which the store was being constructed was excluded from thestraight-line rent schedule because the construction period was notconsidered to be part of the lease term in accordance with the lease. Based onour re-evaluation, the Company concluded that the construction period should beincluded in the straight-line rent schedule.

 

7

----

 

Asa result of the correction to its rent schedules, the Company restated theCondensed Consolidated Financial Statements for the first quarter of fiscal2004.  The foregoing corrections areinclusive of the immaterial changes resulting from the modification of the rentschedules to achieve consistency with the corresponding leasehold amortizationschedules, as set forth above.

 

LandlordContributions- Leasehold improvement incentives provided by a landlord to theCompany were previously recorded by the Company as a reduction of the property,plant and equipment account on its balance sheet and amortized as a reductionto depreciation expense in its income statement.  However, GAAP requires that such incentivesbe recorded as deferred rent and amortized as reductions to lease expense.  As a result, the Company’s property, plantand equipment asset account and deferred rent liability account were increasedwhich resulted in increases to cash flows provided by operating activities andcash flows used for investing activities in equal amounts.  Accordingly, the Company restated theCondensed Consolidated Financial Statements for the first quarter of fiscal2004.  These landlord contributions areamortized over the life of the lease as a reduction to rent expense.

 

Theimpact of the restatement on the Condensed Consolidated Balance Sheet as of May 1,2004 was an increase in the total property, plant and equipment account of$14,363 and an increase in the deferred rent liability account of $16,183.  The restatement also had a cumulativedecrease on retained earnings of $1,112 and an increase to deferred incometaxes of $708 as of May 1, 2004. The restatement did not have any impact on our previously reported salesor comparable store sales or on our compliance with any financial covenantunder our line of credit facility or other debt instruments.  For the first quarter of fiscal 2004, theimpact of the restatement is a decrease in net income of $64 and a decrease inreported diluted earnings per share of $0.01, from amounts previously reported.

 

Thefollowing is a summary of the significant effects of the restatement on theCompany’s Condensed Consolidated Statements of Income, Condensed ConsolidatedBalance Sheets and Condensed Consolidated Statements of Cash Flows for thefirst quarter of fiscal 2004.  As theCompany has been using the new lease accounting practices since the beginningof fiscal 2005, the Company has accounted for its leases for the currentquarter in accordance with GAAP.

 

**Condensed Consolidated Statements of Income**

 
| ** **                                | ** ** | **Three Months Ended  May 1, 2004** | ** ** |
|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                                | ** ** | **As  Reported****Previously**           | ** ** | **Adjustments** | ** ** | **As  Restated** | ** ** |
| ** **                                | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** |
| **NET SALES**                             | ** ** | **$**                                    | **79,929** |   | $ | — | ** ** | **$** | **79,929** | ** ** |
| Cost of goods  sold                       |       | 30,894                                   |       | — |   | 30,894 |   |
|                                      |       |                                     |       |   |   |   |   |
| **GROSS PROFIT**                          | ** ** | **49,035**                               |       | **—** | ** ** | **49,035** | ** ** |
|                                      |       |                                     |       |   |   |   |   |
| OPERATING  EXPENSES:                      |       |                                     |       |   |   |   |   |
| Sales and  marketing                      |       | 30,651                                   |       | 106 |   | 30,757 |   |
| General and  administrative               |       | 8,584                                    |       | — |   | 8,584 |   |
| Store opening  costs                      |       | 231                                      |       | — |   | 231 |   |
| Total  operating expenses                 |       | 39,466                                   |       | 106 |   | 39,572 |   |
|                                      |       |                                     |       |   |   |   |   |
| **OPERATING  INCOME**                     | ** ** | **9,569**                                | ** ** | **(106** | **)** | **9,463** | ** ** |
|                                      |       |                                     |       |   |   |   |   |
| Interest  expense, net                    |       | 481                                      |       | — |   | 481 |   |
| Income before  provision for income taxes |       | 9,088                                    |       | (106 | ) | 8,982 |   |
| Provision for  income taxes               |       | 3,753                                    |       | (42 | ) | 3,711 |   |
| **NET INCOME**                            | ** ** | **$**                                    | **5,335**  | ** ** | **$** | **(64** | **)** | **$** | **5,271** | ** ** |
|                                      |       |                                     |       |   |   |   |   |
| **EARNINGS PER SHARE**                    |       |                                     |       |   |   |   |   |
| **Net Income:**                           |       |                                     |       |   |   |   |   |
| **Basic**                                 | ** ** | **$**                                    | **0.40**   | ** ** | **$** | **(0.00** | **)** | **$** | **0.40** | ** ** |
| **Diluted**                               | ** ** | **$**                                    | **0.38**   | ** ** | **$** | **(0.01** | **)** | **$** | **0.37** | ** ** |
|                                      |       |                                     |       |   |   |   |   |
| Weighted  average shares outstanding      |       |                                     |       |   |   |   |   |
| Basic                                     |       | 13,246                                   |       | — |   | 13,246 |   |
| Diluted                                   |       | 14,213                                   |       | — |   | 14,213 |   |

 

8

----

 

**Condensed Consolidated Balance Sheets**

 
| ** **                                       | ** ** | **May 1, 2004**          | ** ** |
|--------------------------------------------------|------------|-------------------------------|------------|
| ** **                                       | ** ** | **As Reported****Previously** | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
| ** **                                       | ** ** | ** **                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| **ASSETS**                                       |       |                          |       |   |   |   |   |
| CURRENT  ASSETS:                                 |       |                          |       |   |   |   |   |
| Cash and cash  equivalents                       |       | $                             | 904        |   | $ | — |   | $ | 904 |   |
| Accounts  receivable, net                        |       | 6,158                         |       | — |   | 6,158 |   |
| Inventories:                                     |       |                          |       | — |   |   |   |
| Raw materials                                    |       | 7,718                         |       | — |   | 7,718 |   |
| Finished goods                                   |       | 118,182                       |       | — |   | 118,182 |   |
| Total  inventories                               |       | 125,900                       |       | — |   | 125,900 |   |
| Prepaid  expenses and other current  assets |       | 10,058                        |       | — |   | 10,058 |   |
| Deferred  income taxes                           |       | —                        |       | 2,697 |   | 2,697 |   |
| Total current  assets                            |       | 143,020                       |       | 2,697 |   | 145,717 |   |
|                                             |       |                          |       |   |   |   |   |
| NONCURRENT ASSETS:                               |       |                          |       |   |   |   |   |
| Property,  plant and equipment, net              |       | 47,749                        |       | 14,363 |   | 62,112 |   |
| Other  noncurrent assets                         |       | 970                           |       | — |   | 970 |   |
| Deferred  income taxes                           |       | 1,688                         |       | (1,688 | ) | — |   |
| Total assets                                     |       | $                             | 193,427    |   | $ | 15,372 |   | $ | 208,799 |   |
|                                             |       |                          |       |   |   |   |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**    |       |                          |       |   |   |   |   |
| CURRENT  LIABILITIES:                            |       |                          |       |   |   |   |   |
| Accounts  payable                                |       | $                             | 27,180     |   | $ | — |   | $ | 27,180 |   |
| Accrued  expenses and other                      |       | 29,733                        |       | — |   | 29,733 |   |
| Current  portion of long-term debt               |       | 1,006                         |       | — |   | 1,006 |   |
| Deferred tax  liability - current                |       | 1,308                         |       | (1,308 | ) | — |   |
| Total current  liabilities                       |       | 59,227                        |       | (1,308 | ) | 57,919 |   |
|                                             |       |                          |       |   |   |   |   |
| NONCURRENT LIABILITIES:                          |       |                          |       |   |   |   |   |
| Long-term  debt, net of current portion          |       | 34,856                        |       | — |   | 34,856 |   |
| Noncurrent  lease obligations                    |       | 5,177                         |       | 16,183 |   | 21,360 |   |
| Other  noncurrent liabilities                    |       | 908                           |       | — |   | 908 |   |
| Deferred tax  liability - noncurrent             |       | —                        |       | 1,609 |   | 1,609 |   |
| Total  liabilities                               |       | 100,168                       |       | 16,484 |   | 116,652 |   |
|                                             |       |                          |       |   |   |   |   |
| STOCKHOLDERS’ EQUITY:                       |       |                          |       |   |   |   |   |
| Preferred  stock                                 |       | —                        |       | — |   | — |   |
| Common stock                                     |       | 123                           |       | — |   | 123 |   |
| Additional  paid-in capital                      |       | 64,628                        |       | — |   | 64,628 |   |
| Retained  earnings                               |       | 33,566                        |       | (1,112 | ) | 32,454 |   |
|                                             |       |                          |       |   |   |   |   |
| Treasury stock                                   |       | (5,058                        | )          | — |   | (5,058 | ) |
| Total  stockholders’ equity                 |       | 93,259                        |       | (1,112 | ) | 92,147 |   |
| Total  liabilities and stockholders’ equity |       | $                             | 193,427    |   | $ | 15,372 |   | $ | 208,799 |   |

 

9

----

 

**Condensed Consolidated Statements of Cash Flows**

 
| ** **                                                                     | ** ** | **Three Months Ended  May 1, 2004** | ** ** |
|--------------------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                     | ** ** | **As  Reported  Previously**             | ** ** | **Adjustments** | ** ** | **As  Restated** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                          | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income                                                                     |       | $                                        | 5,335      |   | $ | (64 | ) | $ | 5,271 |   |
| Adjustments to reconcile net income to net  cash used in operating activities: |       |                                     |       |   |   |   |   |
| Depreciation  and amortization                                                 |       | 1,939                                    |       | 558 |   | 2,497 |   |
| Net increase  in operating working capital                                     |       | (11,379                                  | )          | 1,259 |   | (10,120 | ) |
|                                                                           |       |                                     |       |   |   |   |   |
| **Net cash  used in operating activities**                                     |       | (4,105                                   | )          | 1,753 |   | (2,352 | ) |
|                                                                           |       |                                     |       |   |   |   |   |
| CASH FLOWS USED FOR INVESTING ACTIVITIES:                                      | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Capital  expenditures                                                          |       | (3,137                                   | )          | (1,753 | ) | (4,890 | ) |
| Proceeds from  disposal of assets                                              |       | 850                                      |       | — |   | 850 |   |
|                                                                           |       |                                     |       |   |   |   |   |
| **Net cash used in investing activities**                                      |       | (2,287                                   | )          | (1,753 | ) | (4,040 | ) |
|                                                                           |       |                                     |       |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                          |       |                                     |       |   |   |   |   |
| Borrowings  under revolving loan  agreement                               |       | 27,520                                   |       | — |   | 27,520 |   |
| Repayment of  borrowings under revolving loan agreement                        |       | (19,869                                  | )          | — |   | (19,869 | ) |
| Repayment of  other long-term debt                                             |       | (1,652                                   | )          | — |   | (1,652 | ) |
| Net proceeds  from issuance of common stock                                    |       | 422                                      |       | — |   | 422 |   |
|                                                                           |       |                                     |       |   |   |   |   |
| **Net cash provided by financing activities**                                  |       | 6,421                                    |       | — |   | 6,421 |   |
|                                                                           |       |                                     |       |   |   |   |   |
| Net increase  in cash and cash equivalents                                     |       | 29                                       |       | — |   | 29 |   |
|                                                                           |       |                                     |       |   |   |   |   |
| CASH AND CASH  EQUIVALENTS, beginning of year                                  |       | 875                                      |       | — |   | 875 |   |
| CASH AND CASH  EQUIVALENTS, end of year                                        |       | $                                        | 904        |   | $ | — |   | $ | 904 |   |

 

**4.****                                      SUPPLEMENTALCASH FLOW DISCLOSURE**

 

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

 
| ** **                                           | ** ** | **Three Months Ended**         | ** ** |
|------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                           | ** ** | **May 1, 2004**           |       | **April 30, 2005** | ** ** |
| ** **                                           | ** ** | **(As Restated,  See Note 3)** |       | ** ** | ** ** |
| Increase in accounts receivable                      |       | $                              | (1,957     | ) | **$** | **(4,282** | **)** |
| Increase in inventories                              |       | (5,112                         | )          | **(16,921** | **)** |
| (Increase) decrease in prepaids and other  assets    |       | 530                            |       | **(766** | **)** |
| Increase (decrease) in accounts payable              |       | (1,568                         | )          | **2,591** | ** ** |
| Decrease in accrued expenses and other  liabilities  |       | (2,013                         | )          | **(3,816** | **)** |
| Increase in deferred taxes                           |       | —                         |       | **8,269** | ** ** |
| ** **                                           | ** ** | ** **                     |       | ** ** | ** ** |
| Net increase in operating working capital  and other |       | $                              | (10,120    | ) | **$** | **(14,925** | **)** |

 

**Interestand Income Taxes Paid:**

 
| ** **                                       | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------|------------|------------------------|------------|
| ** **                                       | ** ** | **May 1, 2004**   | ** ** | **April 30, 2005** | ** ** |
| ** **                                       | ** ** | ** **             | ** ** | ** ** | ** ** |
| Interest and income taxes paid were as  follows: | ** ** | ** **             | ** ** | ** ** | ** ** |
| Interest paid                                    |       | $                      | 480        | ** ** | **$** | **251** | ** ** |
| Income taxes paid                                |       | $                      | 5,472      | ** ** | **$** | **96** | ** ** |

 

10

----

 

**5.****                                      EARNINGSPER SHARE**

 

Basic net income per share is calculated by dividing net income by theweighted average 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** | ** ** |
|------------------------------------------------------|------------|------------------------|------------|
| ** **                                           | ** ** | **May 1, 2004**   | ** ** | **April 30, 2005** | ** ** |
|                                                 |       |                   |       |   |   |
| Weighted average shares outstanding for  basic EPS   |       | 13,246                 | ** ** | **13,471** | ** ** |
| ** **                                           | ** ** | ** **             | ** ** | ** ** | ** ** |
| Dilutive effect of common stock equivalents          |       | 967                    | ** ** | **850** | ** ** |
| ** **                                           | ** ** | ** **             | ** ** | ** ** | ** ** |
| Weighted average shares outstanding for  diluted EPS |       | 14,213                 | ** ** | **14,321** | ** ** |

 

The Company uses the treasury method for calculating the dilutiveeffect of stock options.  There were noanti-dilutive options as of May 1, 2004 and 19 anti-dilutive options as ofApril 30, 2005.

 

**6.****                                      SEGMENTREPORTING**

 

The Company has two reportable segments: stores and directmarketing.  The stores segment includesall Company owned stores excluding factory stores.  The direct marketing segment includes allsales through catalog and internet. While each segment offers a similar mix of men’s clothing to the retailcustomer, the stores also provide complete alterations and the direct marketingsegment only provides certain alterations.

 

The accounting policies of the segments are the same as those describedin the Company’s Annual Report on Form 10-K for the fiscal yearended January 29, 2005.  The Companyevaluates performance of the segments based on “four wall” contribution whichexcludes any allocation of “management company” costs, distribution center costs(except order fulfillment costs which are allocated to direct marketing),interest and income taxes.

 

The Company’s segments are strategic business units that offer similarproducts to the retail customer by two distinctively different methods.  In stores the typical customer travels to thestore and purchases men’s clothing and/or alterations and takes their purchaseswith them.  The direct marketing customerreceives a catalog in his or her home and/or office and/or visits our web page viathe internet and places an order by phone, mail, fax or on line.  The merchandise is then shipped to thecustomer. Segment data is presented in the following table:

 

**Threemonths ended April 30, 2005**

 
| ** **                    | ** ** | **Stores** | ** ** | **Direct Marketing** | ** ** | **Other**  | ** ** | **Total**  | ** ** |
|-------------------------------|------------|------------|------------|----------------------|------------|------------|------------|------------|------------|
| ** **                    | ** ** | ** ** | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales (a)                 |       | $          | 84,682     |                 | $          | 9,319      |       | $          | 2,574      |   | $ | 96,575 |   |
| Depreciation and amortization |       | 2,568      |       | 17                   |       | 494        |       | 3,079      |       |
| Operating income (b)          |       | 18,676     |       | 3,387                |       | (10,281    | )          | 11,782     |       |
| Identifiable assets (c)       |       | 201,893    |       | 23,454               |       | 30,322     |       | 255,669    |       |
| Capital expenditures (d)      |       | 5,004      |       | 0                    |       | 129        |       | 5,133      |       |
|                               |            |            |            |                      |            |            |            |            |            |  |  |  |  |

 

Three Months ended May 1,2004 (as restated)

 
| ** **                    | ** ** | **Stores** | ** ** | **Direct Marketing** | ** ** | **Other** | ** ** | **Total** | ** ** |
|-------------------------------|------------|------------|------------|----------------------|------------|-----------|------------|-----------|------------|
|                          |       |       |       |                 |       |      |       |      |       |
| Net sales (a)                 |       | $          | 70,386     |                 | $          | 7,375     |       | $         | 2,168      |   | $ | 79,929 |   |
| Depreciation and amortization |       | 1,915      |       | 16                   |       | 566       |       | 2,497     |       |
| Operating income (b)          |       | 15,881     |       | 2,431                |       | (8,849    | )          | 9,463     |       |
| Identifiable assets (c)       |       | 152,925    |       | 28,514               |       | 27,360    |       | 208,799   |       |
| Capital expenditures (d)      |       | 4,710      |       | 5                    |       | 175       |       | 4,890     |       |
|                               |            |            |            |                      |            |           |            |           |            |  |  |  |  |

 

----

(a)          Direct marketing net sales represent catalog andinternet sales including catalog orders placed in new stores.  Net sales from

 

11

----

 

segments below the quantitative thresholdsare attributable primarily to three operating segments of the Company. Thosesegments are factory stores, franchise stores and regional tailor shops.  None of these segments have ever met any ofthe quantitative thresholds for determining reportable segments and areincluded 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)          Identifiableassets include cash and cash equivalents, accounts receivable, inventories,prepaid expenses and other current assets and property, plant and equipmentresiding in or related to the reportable segment. Assets included in Other areprimarily cash and cash equivalents, property, plant and equipment associatedwith the corporate office and distribution center, deferred tax assets, andinventories, which have not been assigned to one of the reportable segments.

(d)         Capitalexpenditures include purchases of property, plant and equipment made for thereportable segment.

 

**7.****                                      COMMONSTOCK DIVIDENDS**

 

OnJanuary 13, 2004, the Company’s Board of Directors declared a 50% commonstock dividend payable on February 18, 2004 to stockholders of record asof January 30, 2004.  On June 8,2004, the Company’s Board of Directors declared a 25% common stock dividendpayable 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.

 

**8.****                                      LEGALMATTERS**

 

From time to time, legal matters in which the Company may be named as adefendant arise in the normal course of the Company’s 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 2****.****                                   Management’sDiscussion and Analysis of Results of Operations and Financial Condition**

 

The following discussionshould be read in conjunction with the attached condensed consolidatedfinancial statements and notes thereto and with the Company’s audited financialstatements and notes thereto included in its Annual Report on Form 10-Kfor the fiscal year ended January 29, 2005.

 

The financial information for fiscal 2004 included in this Form 10-Qhas been restated to reflect the revision of the Company’s historic practicesof accounting for lease transactions as discussed in the Company’s AnnualReport on Form 10-K for the fiscal year ended January 29,2005.  See Note 3 to this Form 10-Qfor further discussion.

 

**Overview**- For the first quarter of the Company’s fiscal year ending January 28,2006 (“fiscal 2005”), the Company’s net income increased to $6.7 millioncompared with net income of $5.3 million for the first quarter of the Company’sfiscal year ended January 29, 2005 (“fiscal 2004”). The Company earned$0.47 per diluted share in the first quarter of fiscal 2005 compared with $0.37per diluted share in the first quarter of fiscal 2004.  As such, diluted earnings per share increased27% compared with the prior year period. The increased earnings were primarily attributable to:

 

•                  20.8% increase in net sales withincreases in both the store and direct marketing (catalog and internet)segments; 

•                  Over 140 basis point increase ingross profit margins; and

•                  The opening of 57 new stores sincethe end of the first quarter of 2004.

 

The increasedearnings in the first quarter of fiscal 2005 follow an increase of 131% inearnings per share in the first quarter of fiscal 2004 above the results of thefirst quarter of the fiscal year ended January 31, 2004 (“fiscal 2003”).

 

Managementbelieves that the chain can grow to approximately 500 stores from the fiscal2004 year-end base of 269 stores.  TheCompany plans to open between 60 to 75 stores in fiscal 2005 as part of itsplan to grow the chain to the 500 store level. The Company opened 6 stores inthe first quarter of fiscal 2005 and expects to open approximately 10 to 14stores in the second quarter, with the remaining stores to be opened in thesecond half of the year. The store growth is part of a strategic plan theCompany initiated in the year ended February 3, 2001 (“fiscal 2000”).  In the past five years, the Company hascontinued to increase the number of store openings as infrastructure andperformance has improved.  As such, therewere ten new stores opened in fiscal 2000 (including two factory stores), 21new stores in the year ended February 2, 2002, 25 new stores in the yearended February 1, 2003 (“fiscal 2002”), 50 new stores in fiscal 2003 and60 new stores in fiscal 2004.

 

12

----

 

Capitalexpenditures are expected to be approximately $35 million in fiscal 2005,primarily to fund the opening of approximately 60 to 75 new stores, therenovation and/or relocation of several stores and the implementation ofvarious systems initiatives.  The capitalexpenditures include the cost of the construction of leasehold improvements fornew stores of which $12-15 million is expected to be reimbursed throughlandlord contributions.  The Company alsoexpects inventories to increase in 2005 to support new store openings, salesgrowth in existing segments and other initiatives.

 

*Common Stock Dividends.*  On January 13, 2004, the Company’s Boardof 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 ofDirectors declared a 25% common stock dividend payable on August 18, 2004to stockholders of record as of July 30, 2004. Unless otherwise indicated,all historical weighted average share and per share amounts and all referencesto the number of common shares elsewhere in the consolidated financialstatements, and notes thereto, have been restated to reflect the two stockdividends.

 

**Critical accounting policies and estimates**-In preparing the Condensed Consolidated Financial Statements, a number ofassumptions and estimates are made that, in the judgment of management, areproper in light of existing general economic and company-specificcircumstances. For a detailed discussion on the application of this and otheraccounting policies, see Note 1 to the Consolidated Financial Statements in theCompany’s Annual Report on Form 10-K for the fiscal year ended January 29,2005.

 

*Inventory.* TheCompany records inventory at the lower of cost or market (“LCM”). Cost isdetermined using the first-in, first-out method.   The estimated market value is based onassumptions for future demand and related pricing. The Company reduces thecarrying value of inventory to net realizable value where cost exceedsestimated selling price less costs of disposal.

 

Management’s sales assumptions are based on the Company’s experiencethat most of the Company’s inventory is sold through the Company’s primarysales channels with virtually no inventory being liquidated through bulk salesto third parties. The Company’s LCM reserve estimates for inventory that havebeen made in the past have been very reliable as a significant portion of itssales (approximately 67% in fiscal 2004) are classic traditional products thatare on-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 goalsare achieved to limit the need to sell significant amounts of product below cost.  In addition, the Company’s strong grossprofit margins enable the Company to sell substantially all of its products atlevels above cost.

 

To calculate the estimated market value, the Company periodicallyperforms a detailed review of all of its major inventory classes andstock-keeping units.  The Companycompares the on-hand units and season-to-date unit sales (including actualselling prices) to the sales trend and estimated prices required to sell theunits in the future, which enables the Company to estimate the amount which mayhave to be sold below cost. Substantially all units sold below cost are sold in the Company’sfactory stores within twenty-four months of purchase.  In fiscal 2003 and 2004, the Company’s costsin excess of selling price plus the cost of disposal in its factory stores was$1.1 million and $1.1 million, respectively. The Company anticipates similar results in fiscal 2005.  The inventory component of these costs isrecorded in cost of goods sold whereas the related costs of disposal arerecorded as selling and marketing expenses.   If the inventory required to be sold through the factory stores orliquidated through other means varies from the estimate, the Company’s LCMreserve could change.

 

*Asset Valuation.*Long-lived assets, such as property, plant and equipment subject todepreciation, are periodically reviewed for impairment to determine whetherevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. Recoverability of assets to be held and used ismeasured by a comparison of the carrying amount of an asset to estimatedundiscounted future cash flows expected to be generated by the asset. If thecarrying amount of an asset exceeds its estimated future cash flows, animpairment charge is recognized in the amount by which the carrying amount ofthe asset exceeds the fair value of the asset. The asset valuation estimate is principally dependent on the Company’sability to generate profits at both the Company and store levels.  These levels are principally driven by thesales and gross profit trends that are closely monitored by the Company.  There were no asset valuation chargesrecorded for the three month periods ended May 1, 2004 and April 30,2005.

 

*Lease Accounting. *The Company uses aconsistent lease period (generally, the initial non-cancelable lease term plusrenewal options periods provided for in the lease that can be reasonableassured) when calculating depreciation of leasehold improvements and indetermining straight-line rent expense and classification of its leases aseither an operating lease or a capital lease. The lease term and straight-line rent expense (inclusive of theconstruction period) commence on the date when the Company takes possession andhas the right to control use of the leased premises.  Funds received from the lessor intended toreimburse the Company for the costs of leasehold improvements is recorded as adeferred credit resulting from a lease incentive and amortized over the leaseterm as a reduction to rent expense.

 

13

----

 

While the Company has taken reasonable care in preparing theseestimates and making these judgments, actual results could and probably willdiffer from the estimates.  Managementbelieves any difference in the actual results from the estimates will not havea material effect upon the Company’s financial position or results ofoperations.

 

**Resultsof Operations**

 

The following table isderived from the Company’s Condensed Consolidated Statements of Income and setsforth, for the periods indicated, the items included in the CondensedConsolidated Statements of Income expressed as a percentage of net sales.

 
| ** **                               | ** ** | **Percentage of Net Sales  Three Months Ended** | ** ** |
|------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                               | ** ** | **May 1, 2004**                            | ** ** | **April 30, 2005** | ** ** |
|                                     |       |                                            |       |   |   |
| Net sales                                |       | 100.0                                           | %          | **100.0** | **%** |
| Cost of goods sold                       |       | 38.7                                            | ** ** | **37.2** | ** ** |
| Gross profit                             |       | 61.3                                            | ** ** | **62.8** | ** ** |
| General and administrative expenses      |       | 10.7                                            | ** ** | **9.5** | ** ** |
| Sales and marketing expenses             |       | 38.5                                            | ** ** | **40.9** | ** ** |
| Store opening costs                      |       | 0.3                                             | ** ** | **0.1** | ** ** |
| Operating income                         |       | 11.8                                            | ** ** | **12.2** | ** ** |
| Interest expense, net                    |       | 0.6                                             | ** ** | **0.3** | ** ** |
| Income before provision for income taxes |       | 11.2                                            | ** ** | **11.9** | ** ** |
| Provision for income taxes               |       | 4.6                                             | ** ** | **4.9** | ** ** |
| Net income                               |       | 6.6                                             | ** ** | **7.0** | ** ** |

 

**Net sales**- Net sales increased 20.8% or $16.7 million to $96.6 million in the firstquarter of fiscal 2005 compared with $79.9 million in the first quarter offiscal 2004.  The sales increase wasprimarily related to a 20.3% increase in store sales (including a 4.1% increasein comparable store sales) and a 26.4% increase in direct marketing sales. Thesales increases were primarily due to increases in sales of suits, shirts, tiesand sportswear.

 

For comparable stores, the average dollars per transaction increased inthe first quarter of fiscal 2005 as compared to the first quarter in fiscal2004.  Traffic (as measured by transactions)in comparable stores also increased in first quarter of fiscal 2005 while itemsper transaction decreased.  Beginning infiscal 2005, comparable store sales include merchandise sales generated in allstores that have been open for at least thirteen full months.

 

The following tablesummarizes store opening and closing activity during the respective periods.

 
| ** **                                  | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------|------------|------------------------|------------|
| ** **                                  | ** ** | **May 1, 2004**   | ** ** | **April 30, 2005** | ** ** |
| ** **                                  | ** ** | **Stores**             | ** ** | **Square  Feet*** | ** ** | **Stores** | ** ** | **Square  Feet*** | ** ** |
|                                        |       |                   |       |   |   |   |   |   |   |
| Stores open at the beginning of the quarter |       | 210                    |       | 1,062 | ** ** | **269** | ** ** | **1,318** | ** ** |
| Stores  opened                              |       | 9                      |       | 38 | ** ** | **6** | ** ** | **23** | ** ** |
| Stores  closed                              |       | (1                     | )          | (5 | ) | **—** | ** ** | **—** | ** ** |
| Stores open at the end of the quarter       |       | 218                    |       | 1,095 | ** ** | **275** | ** ** | **1,341** | ** ** |

 

----

*square feet is presented in thousands and excludes franchise stores

 

**Grossprofit**- Gross profit (net sales less cost of goods sold)increased to $60.6 million or 62.8% of net sales in the first quarter of fiscal2005 from $49.0 million or 61.3% of net sales in the first quarter of fiscal2004.  The increased gross profitpercentage is primarily due to the continued improvement in sourcing ofmerchandise, thus reducing the cost of items purchased, and increases in retailprices.  Gross profit margins increasedin substantially all major product categories. 

 

**Sales andMarketing Expenses** – Sales and marketing expenses, whichconsist primarily of a) full-line store, factory store and direct marketingoccupancy, payroll, selling and other variable costs and b) total Companyadvertising and marketing expenses, increased to $39.5 million or 40.9% ofsales in the first quarter of fiscal 2005 from $30.8 million or 38.5% of salesin the first quarter of fiscal 2004.  The$8.8 million increase in sales and marketing expenses relates primarily to a)$6.1 million of additional costs incurred in the 57 stores opened since the endof the first quarter of fiscal 2004 and the incremental costs for the 8 stores(net) which opened in the

 

14

----

 

first quarter of fiscal2004 and b) $2.7 million additional costs related to an increase in expenses inthe stores which were open prior to fiscal 2004 as well as in total Companymarketing costs.  The Company expectssales and marketing expenses to increase in fiscal 2005 primarily as a resultof opening 60 to 75 new stores, the full year operation of stores that wereopened during fiscal 2004, and an increase in advertising expenditures.

 

**Generaland Administrative Expenses** – General and administrativeexpenses (“G&A”), which consist primarily of corporate payroll costs andoverhead and distribution center costs, increased to $9.2 million or 9.5% ofsales in the first quarter of fiscal 2005 from $8.6 million or 10.7% in thefirst quarter of 2004.  The increases wereprimarily due to higher distribution center occupancy costs, travel relatedcosts, professional fees related to financial control compliance and otherexpenses related to business expansion. Continued growth in stores and the direct segment may result inincreases in G&A expenses.  In the firstquarter of 2004, the Company recognized a gain of $0.3 million related to thesettlement of a dispute in favor of the Company, which was recorded as areduction of G&A.

 

**StoreOpening Costs** – Store opening costs, which include theinitial promotional advertising costs as well as other start-up costs such astravel for recruitment, training, and setup of new stores, decreased $0.1million to $0.1 million in the first quarter of fiscal 2005 from $0.2 millionfor the same period of 2004 due primarily to the opening of fewer stores in thefirst quarter of 2005 compared with the same period of 2004.

 

**InterestExpense, net** – Interest expense decreased $0.2 million to$0.3 million in the first quarter of fiscal 2005 from $0.5 million for the sameperiod of 2004.  The decrease was dueprimarily to lower borrowing levels partially offset by higher interestrates.  Average revolver loan borrowingsdecreased $18.8 million to $6.2 million in the first quarter of fiscal 2005compared with $25.0 for the same period of fiscal 2004.  The average interest rate was 5.98% for thefirst fiscal quarter of 2005 compared with 2.97% for the same period of 2004.

 

**IncomeTaxes** – The first quarter of fiscal 2005 effective incometax rate remained relatively constant at 41.2% compared with 41.3% in the firstquarter of fiscal 2004.  During the firstquarter of 2005 the Company adopted the retail method of accounting forinventory for tax purposes.  The impacton the Company’s tax position as reflected in the first quarter fiscal 2005balance sheet was to decrease taxes currently payable and increase deferred taxliabilities.

 

**Liquidityand Capital Resources** - The Company maintains a bank credit agreement (the “CreditAgreement”), which provides for a revolving loan whose limit is determined by aformula based on the Company’s inventories and accounts receivable. The CreditAgreement allows the Company to borrow a maximum revolving amount under thefacility up to $100 million. In addition, the Company has the option toincrease the amount which may be borrowed to $125 million if requestedprior to April 30, 2006, if needed and if supported by its borrowing baseformula under the Credit Agreement. The Credit Agreement also includesa) financial covenants concerning minimum EBITDA, b) limitations oncapital expenditures and additional indebtedness and c) a restriction onthe payment of dividends. The financial covenants are in effect only if theCompany’s availability in excess of outstanding borrowings is less than$7.5 million. The Company does not believe its availability in excess ofborrowings will be less than $7.5 million during fiscal 2005. As of April 30,2005, the Company was in compliance with all loan covenants. Interest ratesunder the Credit Agreement are either at the prime rate or at LIBOR plus 1.5%which are variable rates and are the same basis as the rates that existed forthe same period of fiscal 2004. The agreement also includes provisions for aseasonal over-advance.  The Company alsohas $6.6 million of term debt to be repaid as noted in the contractualobligations table below.

 

The Company’savailability in excess of outstanding borrowings, as supported by the existingborrowing base under its Credit Agreement, was $78.5 million at April 30,2005 compared with $74.6 million at January 29, 2005.

 

The following tablesummarizes the Company’s sources and uses of funds as reflected in theCondensed Consolidated Statements of Cash Flows (in thousands):

 
| ** **                                | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------|------------|------------------------|------------|
| ** **                                | ** ** | **May 1, 2004**   | ** ** | **April 30, 2005** | ** ** |
|                                      | ** ** | **(As restated)**      | ** ** | ** ** | ** ** |
| Cash (used in) provided by:               | ** ** | ** **             | ** ** | ** ** | ** ** |
| Operating activities                      |       | $                      | (2,352     | ) | **$** | **(4,154** | **)** |
| Investing activities                      |       | (4,040                 | )          | **(5,133** | **)** |
| Financing activities                      |       | 6,421                  | ** ** | **9,999** | ** ** |
| Net increase in cash and cash equivalents |       | $                      | 29         | ** ** | **$** | **712** | ** ** |

 

Cash used by the Company’soperating activities in the first quarter of fiscal 2005 increased primarilydue to higher expenditures for inventory compared with the same period of2004.  Cash used for purchase ofinventory was $16.9 million for the first quarter of 2005 compared with $5.1 millionfor the first quarter of 2004.  This cashused for the purchase of inventory was offset by $8.3 million of cash taxpayments deferred by the change to the retail method of accounting forinventory for tax purposes. Cash used in investing activities in the firstquarter of 2005 relates primarily to capital expenditures for new stores.  Cash provided by financing activities

 

15

----

 

relates primarily to $10million from the Company’s revolving loan under the Credit Agreement and $0.2million from the proceeds of the exercise of stock options.  Also, the Company used $0.2 million for therepayment of long-term debt.

 

For fiscal 2005, theCompany expects to spend approximately $35 million on capital expenditures,primarily to fund the opening of approximately 60 to 75 new stores, therenovation and/or relocation of several stores and the implementation ofvarious systems initiatives. The Company spent $5.1 million on capitalexpenditures in the first quarter of fiscal 2005.  Management believes that the Company’s cashfrom operations and availability under its Credit Agreement will be sufficientto fund its planned capital expenditures and operating expenses for fiscal2005.  The capital expenditures includethe cost of the construction of leasehold improvements for new stores of which$12 to $15 million is expected to be reimbursed through landlordcontributions.  These amounts aretypically paid by the landlords after the completion of construction by theCompany and the receipt of appropriate lien waivers from contractors.  For the stores opened in fiscal 2004, theCompany negotiated approximately $12.6 million of landlord contributions ofwhich approximately $8.7 million have been collected, including approximately$3.5 million which was collected in the first quarter of 2005. The remainingamount is expected to be received in fiscal 2005.  For the stores opened in the first quarter offiscal 2005, the Company negotiated approximately $1.1 million of landlord contributions,which is expected to be received by the end of fiscal 2005.

 

*Off-BalanceSheet Arrangements*– The Company has no off-balance sheetarrangements other than its operating lease agreements and letters of creditoutstanding under its bank credit activity as discussed below.

 

**Disclosures about Contractual Obligations and Commercial Commitments**

 

TheCompany’s principal commitments are non-cancelable operating leases inconnection with its retail stores, certain tailoring spaces and equipment.  Under the terms of certain of these leases,the Company is required to pay a base annual rent plus a contingent amountbased on sales.  In addition, many ofthese leases include scheduled rent increases.

 

Thefollowing table reflects a summary of the Company’s contractual cashobligations and other commercial commitments for fiscal 2005, including amountspaid in the first quarter of fiscal 2005.

 
| ** **                      | ** ** | **Payments Due by Fiscal Year** | ** ** |
|---------------------------------|------------|---------------------------------|------------|
| ** **                      | ** ** | **(in thousands)**              | ** ** |
| ** **                      | ** ** | **2005**                        | ** ** | **2006-2008** | ** ** | **2009-2010** | ** ** | **Beyond  2010** | ** ** | **Total** | ** ** |
|                            |       |                            |       |   |   |   |   |   |   |   |   |
| Long-term debt                  |       | $                               | 917        |   | $ | 13,150 |   | $ | 1,317 |   | $ | 1,475 |   | $ | 16,859 |   |
| Operating leases (a)            |       | 32,852                          |       | 95,514 |   | 52,969 |   | 77,244 |   | 258,579 |   |
| Stand-by Letter-of-credit (b)   |       | —                          |       | 400 |   | — |   | — |   | 400 |   |
| Purchase Commitment (c)         |       | 361                             |       | — |   | — |   | — |   | 361 |   |
| Scheduled Interest Payments (d) |       | 880                             |       | 1,943 |   | 333 |   | 413 |   | 3,569 |   |
| License Agreement               |       | 150                             |       | 495 |   | 330 |   | — |   | 975 |   |
|                                 |            |                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(a)          Includesvarious lease agreements for stores to be opened and equipment placed inservice subsequent to April 30, 2005. See Note 10 to the Company’s Annual Report on Form 10-K forthe fiscal year ended January 29, 2005.

(b)         To securethe payment of rent at one leased location included in “Operating Leases” aboveand is renewable each year through the end of the lease term (2009).

(c)          TheCompany generally does not make unconditional, noncancelable purchasecommitments.  In fiscal 2003, the Companyentered into an agreement with one raw material supplier to purchase aspecified quantity of fabric into fiscal 2005.

(d)         Thesescheduled interest payments consist of interest payments on the outstandinglong term debt.  For borrowings under theCompany’s revolving loan agreement, projected interest is calculated based onthe outstanding principal balance as of April 30, 2005.  For borrowings under the Company’s variablerate debt instruments (including the revolving loan agreement), interest iscalculated based on the interest rates in effect on April 30, 2005.  The principal balance of the revolver and allvariable interest rates may, and probably will, vary in future periods.

 

**Cautionary Statement**

 

The Company’s statements concerning futureoperations contained herein are forward-looking statements within the meaningof the Private Securities Litigation Reform Act of 1995.  Actual results may differ materially fromthose forecasted due to a variety of factors outside of the Company’s controlthat can affect the Company’s operating results, liquidity and financialcondition such as risks associated with economic, weather, public health andother factors affecting consumer spending, the ability of the Company tofinance its expansion plans, the mix and pricing of goods sold, the marketprice of key raw materials such as wool and cotton, availability of lease sitesfor new stores, the ability to source product from its global supplier base andother competitive factors. These cautionary statements qualify all of theforward-looking statements the Company makes herein. The Company cannot assureyou that the results

 

16

----

 

or developments anticipated by the Companywill be realized or, even if substantially realized, that those results ordevelopments will result in the expected consequences for the Company or affectthe Company, its business or its operations in the way the Company expects. TheCompany cautions you not to place undue reliance on these forward-lookingstatements, which speak only as of their respective dates, and assumes noobligation to update any of the forward-looking statements. These risks shouldbe carefully reviewed before making any investment decision.

 

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

 

At April 30, 2005, there were no 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**

 

*Limitationson Controls and Procedures. *Because of their inherent limitations,disclosure controls and procedures and internal control over financialreporting (collectively, “Control Systems”) may not prevent or detect allfailures or misstatements of the type sought to be avoided by Control Systems.Also, projections of any evaluation of the effectiveness of the Company’sControl Systems to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.  Management, including the Company’s ChiefExecutive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), does notexpect that the Company’s Control Systems will prevent all error or allfraud.  A Control System, no matter howwell conceived and operated, can provide only reasonable, not absolute,assurance that the objectives of the Control System are met.  Further, the design of a Control System mustreflect the fact that there are resource constraints, and the benefits ofControl Systems must be considered relative to their costs.  Because of the inherent limitations in allControl Systems, no evaluation can provide absolute assurance that all controlissues and instances of fraud, if any, within the Company have been detected.The following report by management, including the CEO and CFO, on theeffectiveness of the Company’s disclosure controls and procedures expressesonly reasonable assurance of the conclusions reached.

 

*Disclosure Controls and Procedures-*The Company maintains disclosure controls andprocedures that are designed to ensure that information required to bedisclosed by the Company in the reports that it files or submits under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded,processed, summarized, and reported within the time periods specified in theSEC’s rules and forms, and that such information is accumulated andcommunicated to management, including the CEO and CFO, as appropriate, to allowtimely decisions regarding required disclosure. 

 

Managementhas evaluated, with the participation of the CEO and CFO, the effectiveness ofthe Company’s disclosure controls and procedures as of April 30, 2005.Based on that evaluation, the CEO and CFO have concluded that the Company’sdisclosure controls and procedures were effective as of April 30, 2005. 

 

*Changes in Internal Control over Financial Reporting-* On February 7, 2005, the ChiefAccountant of the Securities and Exchange Commission (the “SEC”) issued aletter (the “SEC Letter”) to the Center for Public Company Audit Firms-AmericanInstitute of Certified Public Accountants expressing the views of the SEC staffconcerning certain operating lease accounting issues and their applicationunder generally accepted accounting principles (“GAAP”).  Specifically, the SEC Letter addressed theappropriate accounting for: (1) the amortization of leasehold improvementsby a lessee in an operating lease with lease renewals, (2) the pattern ofrecognition of rent when the lease term in an operating lease contains a periodwhere there are free or reduced rents (commonly referred to as “rentholidays”), and (3) incentives related to leasehold improvements providedby a landlord/lessor to a tenant/lessee in an operating lease. As more fullydescribed in the Company’s Annual Report on Form 10-K for the fiscalyear ended January 29, 2005, filed with the SEC on April 14, 2005,the Company revised its accounting policies in light of the SEC Letter.

 

Amortization of Leasehold Improvements- In order tocomply with the accounting standards regarding amortization of leaseholdimprovements discussed in the SEC Letter, the Company revised the straight-linerent schedules for thirteen of its stores to achieve consistency with thecorresponding leasehold amortization schedules. The resulting change to rent expense was immaterial.

 

Rent Holidays- In the SEC Letter, the SEC staff statedthat GAAP requires rent holidays in an operating lease should be recognized bythe lessee on a straight-line basis over the lease term (including any rentholiday period).  In prior periods, theCompany had generally recognized the straight line expense for a leasebeginning on the date the store opened, which was generally the date the leaseterm commenced in accordance with the lease. The period during which the store was being constructed was excludedfrom the straight-line rent schedule because the construction period wasnot considered to be part of the lease term in accordance with the lease. Basedon our re-evaluation, the Company has concluded that the construction periodshould be included in the straight-line rent schedule.

 

The financial information for the quarter ended May 1,2004 included in this Quarterly Report on Form 10-Q has beenrestated to

 

17

----

 

reflect, among other items, the change in the Company’srent schedules.  Such changes areinclusive of the immaterial changes resulting from the modification of the rentschedules to achieve consistency with the corresponding leasehold amortizationschedules as set forth above. During the first quarter of Fiscal 2005, theCompany implemented procedures designed to insure that rent holidays receiveappropriate accounting treatment in accordance with GAAP.

 

Landlord/Tenant Incentives- Leasehold improvementincentives provided by a landlord to the Company were previously recorded bythe Company as a reduction of the property, plant and equipment account on itsbalance sheet and amortized as a reduction to depreciation expense in itsincome statement.  However, the SECLetter states that such incentives should be “recorded as deferred rent andamortized as reductions to lease expense.” As a result, the Company’s property, plant and equipment asset accountand deferred rent liability account have been increased. The financialinformation for the quarter ended May I, 2004 included in this QuarterlyReport on Form 10-Q has been restated to reflect, among other items,these increases. During the first quarter of Fiscal 2005, the Companyimplemented procedures designed to insure that leasehold improvement incentivesreceive appropriate accounting treatment in accordance with GAAP.

 

Except as otherwise set forth in this Item 4, therehave been no changes in the Company’s internal control over financial reportingthat occurred during the Company’s last fiscal quarter (the Company’s fourthfiscal quarter in the case of an annual report) that have materially affected,or are reasonable likely to materially affect, the Company’s internal controlover financial reporting.

 

**PART II.****                                                OTHERINFORMATION**

 

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

 

From time to time,legal matters in which the Company may be named as a defendant arise in thenormal course of the Company’s 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.****                                   Exhibits**

 

Exhibits

 
| 31.1 |   | Certification of Chief Executive Officer pursuant to Rule 13a-14  or 15d-14(a).                                                                          |
|------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2 |   | Certification of Chief Financial Officer pursuant to Rule 13a-14  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. |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
| Dated:  June 6, 2005 | Jos. A. Bank Clothiers, Inc.                   |
|---------------------------|-----------------------------------------------------|
|                      | (Registrant)                                        |
|                      |                                                |
|                      |  /s/ David E. Ullman                           |   |
|                      | David E. Ullman                                     |
|                      | Executive Vice  President,  Chief Financial Officer |

 

18

----