Tailored Brands Inc. Upgraded To #B+# On Proposed Refinancing And Improved Operating P Outlook Stable

Stocks and Financial Services Press Releases Tuesday March 20, 2018 09:31
NEW YORK--20 Mar--S&P Global Ratings

NEW YORK (S&P Global Ratings) March 19, 2018--S&P Global Ratings today raised its corporate credit rating on Houston-based specialty retailer Tailored Brands, Inc. to 'B+' from 'B'. The outlook is stable.

At the same time, we assigned a 'BB-' issue-level rating and '2' recovery rating to the term loan. The '2' recovery rating indicates our expectation for substantial (70%-90%; rounded estimate: 75%) recovery in the event of default. We also raised the issue-level rating on the senior notes to 'B-' from 'CCC+'. The '6' recovery rating is unchanged and indicates our expectation for negligible (0% to 10%; rounded estimate: 0%) recovery in the event of default.

The rating action reflects the consistent improvement in operating trends at Men's Wearhouse and Jos. A. Bank throughout fiscal 2017, along with strengthening credit metrics as a result of enhanced company profitability and meaningful debt repayment. Positive operating trends in 2017 culminated in the fourth quarter, with both brands delivering positive comparable sales. We expect positive trends to continue over the next 12 months, as we believe that the company's emphasis on enhanced marketing, expansion of the custom business, and continued investment in personalization solutions such as Look Finder will drive growth in the short term and will put the company in a better position to compete and succeed in the long term. E-commerce has not yet disrupted the menswear industry as significantly as some other areas of apparel retail because of the higher importance for personal fit. However, we believe competition from e-commerce will become more of a threat as technology improves, and Tailored Brands' initiatives, such as building an affordable custom clothing business, will help better position the company for that competition.

The stable outlook reflects our view that credit metrics will improve moderately over the next 12 months due to a combination of EBITDA growth and continued healthy debt repayment. We forecast FFO to debt of around 19% and fixed-charge coverage of around 1.9x at fiscal year-end 2018.

We could lower the ratings if Tailored Brands is unable to maintain its recent positive momentum, and operating trends turn negative on an extended basis as a result of increased competition from department stores and e-commerce retailers, ineffective marketing, and/or inability to execute on key growth initiatives. Under this scenario, company-wide comparable sales would decline in the low-to-mid single digits, with one or both of the Men's Wearhouse and Jos. A. Bank brands in negative territory, and EBITDA margin would decrease by 100 bps below our base-case forecast. This would lead to FFO to debt in the mid-teens range and fixed-charge coverage in the mid-1.0x area despite a moderate level of debt repayment.

We could raise the rating if the company can sustain good operating trends at Jos. A. Bank and Men's Wearhouse, resulting in positive comparable-sales at both brands and stable or improving company-wide EBITDA margin, while also continuing to repay meaningful portions of its outstanding debt with healthy free operating cash flow generation. This could happen if the company can continue to successfully execute on marketing and merchandising that resonates with consumers, as well as further grow its custom business. Under this scenario, FFO to debt would be in the low-20% range, and fixed-charge coverage would be in the low-to-mid 2.0x area. We could also raise the rating if consistent improvement in operating metrics, supply chain efficiency, and omnichannel capabilities ultimately lead us to assess the company's business more favorably.


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