Investors selling Jos. A. Bank's stock short as economy worsens - Baltimore Business Journal:

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The fast-growing men's retailer is openintg new stores regularly and has nearlgy doubled its stock price in the pastfive years. But as of 86 percent of its shares were sold meaning investors are betting thatthe stock's pricw will fall. Jos. A. Bank attracts lots of attentiohn from both believersand doubters, with ongointg debates among investors about the company's rapid store expansion and inventory levels. It has become common for closwe to 50 percentof Jos. A. Bank'sd available shares to be sold short.
But short activity on the stock has picked up even with some investor experts saying the economivc downturn could make the retailer an increasinglh attractiveshort target. The percentage of Jos. A. Bank shares sold short fell to 68 percent at the end of according to trading data releasedApril 9. shorting Jos. A. Bank has become so popular that it is gettinbg hard for investors to find sharee tosell short. "Igt is very rare to find a shor interest of 86 percent of publiclgyavailable shares" in a company, said James Angel, professotr at the McDonough School of Businessa at . Executives with Hampstead-based Jos. A. Bank couldf not be reached for comment.
Joseph Parnes has recommended shortingthe fast-growing retailee in his Shortex investment newsletter, most recently on Jan. 30. president of Baltimore-based Technomart Investment saidmen aren't likely to stock up on new suits as the country appears headed for recession. In a short an investor borrows shares and sellds them to others in a bet that the pricdwill fall. Eventually, the investord must buy shares to cover whathe borrowed. If the stock' price falls, the investor can buy back shares cheaplty and turn a if the price the investorloses money. When a price spike touches off a scramble to buy back it pushes the price even highefin what's called a "short squeeze.
" But givem the onslaught of bad economic news lately, the shortsx could be holding on in a bet that Jos. A. Bank will post weak saleas or earnings, Parnes said. Bad news coulc send the stock plummeting, which would allow shorts to cover theirshares cheaply. Jos. A. Bank shares were tradiny at $23.40 this week, well off a 52-week high of $46.16. Jos. A. Bank said in Februarty that it expected a 12 percenty to 14 percent earnings increase for fiscalyear 2007. The companhy has not yet released further data on thefiscall year, which ended Feb. 2.
In federal regulators changed the rulexs governing the return of borrowed shares tobrokerage houses, creating a watchlistr of stocks where there are persistent "failures to such shares. Jos. A. Bank has been on that list for more than 100 Angel said. Jos. A. Bank tends to carr y higher levels of inventory than some saying the extra merchandise feedsthe company'xs growth and helps customedr service. Critics have long decried the highet inventories, while supporters say the companyg has used the merchandise to steadilygrow profits. The latest round of the inventorty debate began to heat upMarch 30, when investment magazin estimated that Jos. A.
Bank had over a year'xs worth of inventory on hand, comparecd with just 292 days of inventoru on hand atcompetitodr . Company officials frequently say Jos. A. Bank buildsx inventory to stock itsnew stores, and that it keepes basic items like men's white dress shirts on shelveds in a wide range of sizes. Jos. A. Bank had $225 millioh in inventory at the beginning of historically a period when the clothier is stocking up for theholiday rush. That figure was an 11 percenf increase from ayear earlier, according to Jos. A. Bank's most recengt quarterly report. For the same period, Jos. A. Bank postedc quarterly sales of $131 million, up 10 percentr from a year ago.
Of six analysts covering the firm, five rate the stocj a hold, according to Thomson Financial Stifel Nicolaus analyst Richard Jaffe wrote in a December researcu notethat Jos. A. Bank "haz been effective in driving sales in a difficult The company's inventory per square foot was flat from a year ago, after falling for five straight quarters, and inventory is "in-line with our expectation," he wrote.