Today, we’re opening a new bearish trade on Jos. A Bank Clothiers (NASDAQ:JOSB).
We watch JOSB and Men’s Warehouse (NYSE:MW) to follow each other after one reports earnings. MW reported last week and the stock jumped considerably. Normally, that would bode well for JOSB, but this time is an exception. MW did not jump on strong performance. In fact, they barely met top-line and missed where it counts on the bottom-line with a larger than expected loss. The stock jumped because they are selling their K&G brand stores, which have been a problem for a while. JOSB doesn’t have a rabbit to pull out of its hat like that.
The sales bright spot for MW was actually due to better-than-expected tuxedo rentals, which is a business that JOSB lags in significantly. In January JOSB warned that earnings this quarter were likely to be sour. The stock took a big hit and gapped lower when the market reopened the following Monday. The announcement was unusual and expectations have since dropped 45%, but in light of the MW report, they haven’t likely dropped enough. The gap that opened up in January will continue to motivate sellers to get out if the news is anything less than stellar. In fact, sellers may wish to move out before the report to avoid a repeat performance.
We like an entry here as the stock outpaces the market’s general bearishness. We don’t have a firm date for earnings yet, but the middle of next week is a pretty good estimate and we expect implied volatility to begin making gains before then. That may allow us to close the trade early for a profit.
Recommendation: Buy to open the JOSB April 40 Puts
John Jagerson and S. Wade Hansen are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next trade and get 1 free month today by clicking here.