United States Securities and Exchange Commission
Washington, DC 20549
FORM 10 - Q
x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended May 1, 1999
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or
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number 0-23874
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Jos. A. Bank Clothiers, Inc.
Delaware 5611 36-3189198
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(State incorporation) (Primary Standard (I.R.S. Employer
Industrial Identification
Classification Number)
Code Number)
500 Hanover Pike, Hampstead, MD 21074-2095
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none
----------------------------------
(Former name or former address, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x ] No [ ]
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class Outstanding as of June 11, 1999
---------------------------- -------------------------------
Common stock. $.01 par value 6,792,027
Jos. A. Bank Clothiers, Inc.
Index
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Part I. Financial Information Page No.
- ------- --------------------- --------
Item 1. Financial Statements
Condensed Consolidated Statements 3
of Income - Three Months ended
May 1, 1999 and May 2, 1998
Condensed Consolidated Balance 4
Sheets - as of May 1, 1999 and
January 30, 1999
Condensed Consolidated Statements 5
of Cash Flows -Three Months
ended May 1, 1999 and May 2, 1998
Notes to Condensed Consolidated 6-9
Financial Statements
Item 2. Management's Discussion and Analysis 9-13
of Results of Operations and
Financial Condition
Part II. Other Information
- --------------------------
Item 6. Exhibits and Reports on Form 8-K 13
(a) Exhibits - Exhibit 27-Financial Data
Schedule (EDGAR filing only)
Signatures 14
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2
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
Three Months Ended
------------------
May 1, May 2,
1999 1998
---- ----
Net sales $ 43,607 $ 43,383
Costs and expenses:
Cost of goods sold 21,499 22,151
General and administrative 4,344 4,528
Sales and marketing 16,609 14,670
Store opening costs 53 240
------ ------
42,505 41,589
------ ------
Operating income 1,102 1,794
Interest expense, net 328 437
------ ------
Income from continuing operations
before provision for income taxes 774 1,357
Provision for income taxes 302 529
------ ------
Income from continuing operations 472 828
Loss from discontinued operations (net of tax) -- (51)
------ ------
Net income $ 472 $ 777
====== ======
Earnings per share:
Income from continuing operations:
Basic $ .07 $ .12
Diluted $ .07 $ .12
Discontinued operations (net of tax):
Basic $ .00 $ (.01)
Diluted $ .00 $ (.01)
Net income:
Basic $ .07 $ .11
Diluted $ .07 $ .11
Weighted average shares outstanding:
Basic 6,792 6,791
Diluted 6,971 6,918
See accompanying notes.
3
JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands) (Unaudited)
May 1, January 30,
1999 1999
----------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 815 $ 748
Accounts receivable 4,084 2,808
Inventories:
Raw materials 5,761 5,178
Finished goods 42,624 39,650
------ ------
Total inventories 48,385 44,828
------ ------
Prepaid expenses and other
current assets 4,617 4,189
Deferred income taxes 2,697 2,883
------- ------
Total current assets 60,598 55,456
------ ------
Property, plant and equipment,
at cost 53,500 51,779
Accumulated depreciation and
amortization (28,104) (27,232)
------ ------
Net property, plant and equipment 25,396 24,547
------ ------
Deferred income taxes 1,995 2,000
Other assets 431 512
------ ------
TOTAL ASSETS $ 88,420 $ 82,515
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 14,653 $ 14,012
Accrued expenses 14,033 12,504
Current portion of long-term debt 1,100 1,111
Net current liabilities of discontinued operations 1,164 767
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Total current liabilities 30,950 28,394
Long-term liabilities 14,664 11,808
------ ------
Total liabilities 45,614 40,202
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Shareholders' equity:
Common stock 70 70
Additional paid-in capital 56,414 56,393
Accumulated deficit (11,758) (12,230)
------ ------
44,726 44,233
Less treasury stock (1,920) (1,920)
------ ------
TOTAL SHAREHOLDERS' EQUITY 42,806 42,313
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 88,420 $ 82,515
====== ======
See accompanying notes.
4
JOS. A. BANK CLOTHIERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
Three Months Ended
------------------
May 1, May 2,
1999 1998
------ ------
Cash flows from operating activities:
Net income $ 472 $ 777
Loss from discontinued operations -- 51
------ -----
Income from continuing operations 472 828
Adjustments to reconcile net income to
net cash used in operating activities:
Decrease in deferred taxes 191 419
Depreciation and amortization 937 950
Stock based compensation 21 17
Net increase in operating working capital (2,998) (4,032)
------ -----
NET CASH USED IN OPERATING ACTIVITIES
OF CONTINUING OPERATIONS (1,377) (1,818)
------ -----
Cash flows from investing activities:
Additions to property, plant and equipment (1,786) (1,550)
------ -----
NET CASH USED IN INVESTING ACTIVITIES
OF CONTINUING OPERATIONS (1,786) (1,550)
------ -----
Cash flows from financing activities:
Borrowings under long-term Credit Agreement 13,345 10,625
Repayment under long-term Credit Agreement (10,431) (7,090)
Borrowings of other long-term debt -- 277
Repayment of other long-term debt (81) (88)
------ -----
NET CASH PROVIDED BY FINANCING ACTIVITIES
OF CONTINUING OPERATIONS 2,833 3,724
Net cash provided by (used in) discontinued operations 397 (243)
------ -----
Net increase in cash and cash equivalents 67 113
Cash and cash equivalents - beginning of period 748 564
------ -----
Cash and cash equivalents - end of period $ 815 $ 677
====== =====
See accompanying notes.
5
Jos. A. Bank Clothiers, Inc.
S.E.C. Form 10-Q, 5/1/99
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
1. BASIS OF PRESENTATION
Jos. A. Bank Clothiers, Inc. (the Company) is a nationwide retailer of
classic men's clothing through conventional retail stores, catalog and
internet direct marketing and franchises. The consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation.
The results of operations for the interim periods shown in this report are
not necessarily indicative of results to be expected for the fiscal year.
In the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim
periods a fair statement of such operations. These adjustments are of a
normal recurring nature.
Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this Quarterly Report on Form
10-Q. Therefore, these financial statements should be read in conjunction
with the Company's January 30, 1999 Annual Report on Form 10-K.
2. SIGNIFICANT ACCOUNTING POLICIES
Inventories are stated at the lower of first-in, first-out, cost or market.
The Company capitalizes into inventories certain warehousing and delivery
costs associated with getting its inventory to the point of sale.
Costs related to mail order catalogs and promotional materials are included
in prepaid expenses and other current assets. These costs are amortized
over the expected periods of benefit, not to exceed six months.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 - Accounting for Income Taxes (SFAS
109). This standard requires, among other things, recognition of future tax
benefits, measured by enacted tax rates attributable to deductible
temporary differences between financial statement and income tax basis of
assets and liabilities and to tax net operating loss carryforwards, to the
extent that realization of such benefits is more likely than not.
Reclassifications - Certain reclassifications have been made to the May 2,
1998 financial statements in order to conform with the May 1, 1999
presentation.
6
Jos. A. Bank Clothiers, Inc.
S.E.C. Form 10-Q, 5/1/99
3. WORKING CAPITAL
The net change in operating working capital is composed of the following:
Three Months Ended
------------------
May 1, May 2,
1999 1998
---- ----
Increase in accounts receivable $ (1,276) $ (729)
Increase in inventories (3,557) (6,840)
Increase in prepaids and other assets (428) (279)
Increase in accounts payable 641 3,062
Increase in accrued expenses and
other liabilities 1,622 754
------- -------
Net increase in operating working capital $ (2,998) $ (4,032)
======= =======
4. EARNINGS PER SHARE
Earnings Per Share - Statement of Financial Accounting Standards (SFAS) No.
128 requires presentation of basic earnings per share and diluted earnings
per share. The weighted average shares used to calculate basic and diluted
earnings per share in accordance with SFAS No. 128 is as follows:
Three Months Ended
May 1, May 2,
1999 1998
------- ------
Weighted average shares
outstanding for basic EPS 6,792 6,791
Diluted EPS:
Dilutive effect of
common stock equivalents 179 127
------- ------
Weighted average shares
outstanding for diluted EPS 6,971 6,918
======= =======
Weighted average shares outstanding for calculating dilutive EPS include
basic shares outstanding, plus shares issuable upon the exercise of stock
options, using the treasury stock method.
7
Jos. A. Bank Clothiers, Inc.
S.E.C. Form 10-Q, 5/1/99
5. DISCONTINUED OPERATIONS
Summarized financial information for the discontinued operations is as follows
(in thousands):
Three Months Ended
-------------------------
May 1, May 2,
1999 1998
---------- ---------
Loss before income taxes $ -- $ (84)
Net loss $ -- $ (51)
As of As of
May 1, Jan. 30,
1999 1999
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Current assets $ 591 $ 1,159
Current liabilities 1,755 1,926
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Net current (liabilities) $ (1,164) $ (767)
========== =========
Noncurrent assets $ 241 $ 241
Noncurrent liabilities 241 241
---------- ---------
Net noncurrent assets $ -- $ --
========== ==========
Revenues of the manufacturing operations primarily represent intercompany sales
which have been eliminated in consolidation.
Net current and noncurrent assets/liabilities of discontinued operations noted
above includes receivables, pension termination and other transaction costs
associated with the discontinued manufacturing operations.
6. SEGMENT REPORTING
The Company has two reportable segments: full line stores and catalog direct
marketing. While each segment offers a similar mix of men's clothing to the
retail customer, the full line stores also provide alterations.
The accounting policies of the segments are the same as those described in the
Company's January 30, 1999 Annual Report on Form 10K. The Company evaluates
performance of the segments based on "four wall" contribution which excludes any
allocation of "management company" costs, distribution center costs (except
order fulfillment costs which are allocated to catalog), interest and income
taxes. Certain segment data is presented in the following table:
8
Jos. A. Bank Clothiers, Inc
S.E.C.Form 10-Q 5/1/99
QUARTER ENDED MAY 1, 1999 Full line Catalog Direct
(in thousands) Stores Marketing Other Total
--------- --------------- ---------- ---------
Net sales $ 37,631 $ 4,481 $ 1,495 (a) $ 43,607
Depreciation and amortization 741 4 192 937
Operating income (b) 5,128 622 (4,648) 1,102
QUARTER ENDED MAY 2, 1998
(in thousands)
Net sales $ 37,869 $ 3,872 $ 1,642 (a) $ 43,383
Depreciation and amortization 652 7 291 950
Operating income (b) 5,981 553 (4,740) 1,794
(a) Revenue from segments below the quantitative thresholds are attributable
primarily to four operating segments of the Company. Those segments include
outlet stores, franchise, regional tailor shops and showroom stores. None of
these segments has ever met any of the quantitative thresholds for determining
reportable segments.
(b) Operating income represents profit before allocations of overhead from
corporate office and the distribution center, interest and income taxes.
7. SUBSEQUENT EVENT
Subsequent to the end of the first quarter of 1999, the Company's Chairman and
CEO retired and the Company will record a one-time charge associated with that
event of approximately $1.8 million in the second quarter of 1999. In addition,
the Company expects to incur about $.4 million of costs related to the search
for and placement of the successor.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with the attached
condensed consolidated financial statements and notes thereto and with the
Company's audited financial statements and notes thereto for the fiscal year
ended January 30, 1999.
OVERVIEW - Income from continuing operations for the quarter ended May 1, 1999
was $.5 million or $.07 per share compared to $.8 million or $.12 per share for
the same period in 1998. The decreased profitability was due primarily to an
unsuccessful sales promotion in March which failed to drive customers into the
stores. The Company believes that the March decline was clearly an aberration
because comparable store sales were positive in February, 1999 prior to the
promotion and continued positive for the two months after the promotion ended.
In addition, sales from the catalog business increased 16 percent in the first
quarter of 1999 on a 16 percent increase in circulation.
9
Jos. A. Bank Clothiers, Inc.
S.E.C.Form 10-Q 5/1/99
The Company continued to pursue its expansion strategy of opening new stores in
existing markets and has opened 32 new stores since Spring 1996. The Company
expects to open 6 to 8 new stores in 1999 and has opened three through May of
1999 and closed one store whose lease had expired. The Company has 106 stores as
of June 1999.
The Company's availability under the Credit Agreement increased to $29.2 million
as of May 1, 1999, which was $2.7 million higher than the same time last year.
Total debt was $4.7 million lower than at the same time last year despite
opening the new stores.
RESULTS OF OPERATIONS - The following table is derived from the Company's
condensed consolidated statements of income and sets forth, for the periods
indicated, the items included in the condensed consolidated statements of
income, expressed as a percentage of net sales.
Percentage of Net Sales
Three Months Ended
----------------------
May 1, May 2,
1999 1998
--------- ---------
Net Sales................................................. 100.0% 100.0%
Cost of goods sold........................................ 49.3 51.1
----- -----
Gross profit.............................................. 50.7 48.9
General and administrative expenses....................... 10.0 10.4
Sales and marketing expenses.............................. 38.1 33.8
Store opening costs....................................... 0.1 0.6
----- -----
Operating income.......................................... 2.5 4.1
Interest expense, net..................................... 0.7 1.0
----- -----
Income from continuing operations
before income taxes.................................... 1.8 3.1
Provision for income taxes ............................... 0.7 1.2
----- -----
Income from continuing operations......................... 1.1 1.9
Loss from discontinued operations, net.................... -- (0.1)
----- -----
Net income................................................ 1.1% 1.8%
===== =====
NET SALES - Net sales increased approximately 1 percent to $43.6 million in the
first quarter of 1999 compared to $43.4 million in 1998. Comparable store sales
were down 8 percent for the first quarter, compared to an increase of 5 percent
in the first quarter of 1998. The decrease in comparable store sales was due to
a new promotion which ran in March and failed to drive traffic into the stores.
Comparable store sales were ahead of last year before the March promotion began
and continued positive for the two months after the promotion ended.
Catalog sales for the first quarter of 1999 were 16 percent higher than the same
period last year on a circulation increase of 16 percent. Internet activity
which is included in catalog sales has increased significantly as the Company
has upgraded its E-Commerce site and has created links with several major
portals, including America Online, Inc. and Amazon.com.
10
Jos. A. Bank Clothiers, Inc.
S.E.C.Form 10-Q 5/1/99
COST OF GOODS SOLD - Gross profit increased by $.9 million to $22.1 million in
the first quarter of 1999 compared to the same period in the prior year. Gross
profit as a percentage of sales remained strong and increased 1.8 percent
in the quarter. The gross profit improvement was primarily the result of higher
maintained margins in nearly all product categories and strong inventory
management. Gross profit percent increased in the stores and decreased slightly
in the catalog business.
GENERAL AND ADMINISTRATIVE EXPENSES - General and administrative expenses
decreased to 10.0 percent of sales in the first quarter ended May 1, 1999
compared to 10.4 percent same period in 1998. The decrease relates primarily to
reductions in travel expense, insurance and incentive compensation as partially
offset by an increase in payroll in store management and the new Corporate
Division.
SALES AND MARKETING EXPENSES - Sales and marketing expenses increased $1.9
million or 4.3 percent compared to last year due primarily to an increase in
marketing expense and higher new store occupancy and payroll costs. The higher
marketing expense was primarily attributable to increased radio in April as the
Company determined that it was necessary to build momentum of traffic in the
stores after the weak March promotion. The higher store occupancy and payroll
costs relate to additional stores since the first quarter of 1998. These costs
were not adequately leveraged as a result of the poor March performance.
STORE OPENING COSTS - Store opening costs decreased $.2 million in the quarter
ended May 1, 1999 as the Company opened one new store during the first quarter
of 1999 compared to seven new stores opened in the same period in 1998.
INTEREST EXPENSE - Interest expense was $.1 million lower during the quarter
ended May 1, 1999 compared to the same period in 1998. This improvement was due
primarily to a $4.7 million reduction in total debt outstanding at the end of
the first quarter of 1999 compared to the end of the first quarter of 1998.
INCOME TAXES - At May 1, 1999, the Company had approximately $6 million of tax
net operating loss carryforwards (NOLs) which expire in 2010. SFAS No. 109
requires that the tax benefit of such NOLs be recorded as an asset to the extent
that management assesses the utilization of such NOLs to be "more likely than
not". Realization of the future tax benefits is dependent on the Company's
ability to generate taxable income within the carryforward period. Future levels
of operating income are dependent upon general economic conditions, including
interest rates and general levels of economic activity, competitive pressures on
sales and margins and other factors beyond the Company's control. Therefore no
assurance can be given that sufficient taxable income will be generated for full
utilization of the NOLs.
LIQUIDITY AND CAPITAL RESOURCES - At May 1, 1999 the Company had outstanding
borrowings of $7.0 million with $29.2 million of availability under its Credit
Agreement compared to borrowings of $11.1 million and availability of $26.5
million at the same time last year. The increase in availability was generated
principally by cash provided by operating activities during the preceding twelve
months and $1 million of additional availability created by higher inventory
levels to support the new stores.
11
Jos. A. Bank Clothiers, Inc.
S.E.C.Form 10-Q 5/1/99
The following table summarizes the Company's sources and uses of funds as
reflected in the condensed consolidated statements of cash flows:
Three Months Ended
May 1, May 2,
1999 1998
----------- ----------
Cash provided by (used in):
Operating activities $ (1,377) $ (1,818)
Investing activities (1,786) (1,550)
Financing activities 2,833 3,724
Discontinued operations 397 (243)
------- -------
Net increase in cash and cash equivalents $ 67 $ 113
=========== ========
Cash used by operating activities was due primarily to higher inventory levels
to support new stores. Cash used in investing activities relates primarily to
build-out costs for new stores and initial payments on the Company's new Point
of Sales (POS) system which is to be installed in 1999. Cash provided by
financing activities represents primarily borrowings on the revolving portion of
the Credit Agreement. The net cash provided by discontinued operations was due
primarily to a reduction in the trade receivable partially offset by payments
for severance and vacation.
The Company expects to spend between $6.5 and $7.0 million on capital
expenditures in 1999, primarily to open 6 to 8 new stores in 1999, to relocate
or renovate 6 existing stores and install a new POS system and related
equipment. The capital expenditures are being financed through operations,
the Credit Agreement and fixture leasing arrangements. The Company believes that
its current liquidity and its Credit Agreement will be adequate to support its
current working capital and investment needs.
The Company expects to continue to devote significant efforts for the balance of
this year to ensure that its business critical systems are "Year 2000
compliant". The Year 2000 ("Y2K") issue is the result of computer programs using
a two-digit format, as opposed to four digits, to indicate the year. Such
computer systems will be unable to accurately interpret dates beyond the year
1999, which could cause a system failure or other computer errors, leading to
disruptions in operations.
The Company has performed an assessment of its systems in order to identify Y2K
issues and has identified its business-critical area of exposure to be: (a)
merchandising and financial, (b) POS, (c) cash management, (d) catalog, (e)
warehouse management, (f) payroll and human resources, and (g) third party
relationships. Most of the Company's applications operate on two IBM AS/400
hardware configurations and are"off-the-shelf" packages with modifications and
interfaces made by the Company. The Company also relies on personal computers to
prepare detailed analysis. The Company believes that by installing the
vendor-developed upgrades to the latest versions of its existing systems and
re-working its modifications and interfaces, most of the Y2K issues should be
corrected. The vendors for the merchandising, general ledger and catalog
applications have certified that the updated versions of their systems are Y2K
compliant.
12
Jos. A. Bank Clothiers, Inc
S.E.C. Form 10Q, 5/1/99
The Company expects to install the latest versions of its systems by the middle
of 1999 with Y2K testing performed for each application installed. In accordance
with this plan, in August, 1998 the Company installed and implemented the latest
version of its merchandising, warehouse, sales audit, accounts payable and
general ledger system (which included many upgrades in addition to Y2K
compliance). In May 1999, the Company installed the latest version of its
Catalog system and the system is operating well. The payroll and human resources
system has also been upgraded to a Y2K compliant version. While the current POS
system is Y2K compliant, the Company is installing a new POS system which is
expected to be installed by August 1999. The Company expects to finalize the
related Y2K testing for these applications throughout 1999. The Company has
identified certain third parties who supply product to the Company and they do
not expect to have any significant disruptions to deliveries as a result of Y2K
issues. However, the Company will continue to monitor this situation.
The Company has also reviewed its less critical and non-Information Technology
areas such as security and phone systems, etc., and has determined that these
items are substantially Y2K compliant and does not anticipate any major
disruptions.
The Company estimates that it will spend approximately $1.0 million
(representing a combination of capital and expense) on these upgrades between
1998 and 1999, although an exact amount related to Y2K compliance cannot be
measured because many of the upgrades include increased functionality as well as
Y2K compliance. The full year 1999 expense is estimated to be approximately $.3
million which is about the same as in 1998.
Should these efforts not be successful, the Y2K problems could have a material
impact on the operations of the Company. Although there is a high level of
confidence that these efforts will be successful, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those anticipated. The Company has not developed a formal contingency plan
should any of its critical systems not operate in the Year 2000 and expects to
focus on this aspect of the Y2K project in the second half of 1999.
The Company's plans and beliefs concerning future operations contained herein
are forward-looking statements within the meaning of the Private Securities
Litigation reform Act of 1995. Actual results may differ materially from those
forecast due to a variety of factors that can adversely affect the Company's
operating results, liquidity and financial condition such as risks associated
with economic, weather and other factors affecting consumer spending, the mix of
goods sold, pricing, availability of lease sites for new stores and other
competitive factors.
PART II. OTHER INFORMATION
Item 6. Exhibits
- ------------------
Exhibit 27.0 Financial Data Schedule.
13
Jos. A. Bank Clothiers, Inc
S.E.C. Form 10Q, 5/1/99
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: June 14, 1999 Jos. A. Bank Clothiers, Inc.
(Registrant)
/s/: David E. Ullman
------------------------------------------
David E. Ullman
Executive Vice President, Chief Financial Officer
14