Men's Wearhouse shares tanked more than 40 percent Friday, hours after the specialty men's store pre-announced dismal third-quarter results from its Jos. A. Bank brand.
The company on Thursday said that comparable sales at its Jos A. Bank label, which it acquired for $1.8 billion last year, fell 14.6 percent during the quarter. The decline was driven by a drop in traffic as it started to move away from its ubiquitous Buy One, Get Three free promotions.
What's more, the company said same-store sales at the label are expected to decline 20 percent to 25 percent in the fourth quarter due to slower traffic and fewer items being bought in each transaction.
"While we expected top-line volatility, as we previously stated, we did not anticipate that the impact from the traffic decline would occur to this degree, primarily because the prior year comparisons got progressively easier as the quarter progressed," CEO Doug Ewert said.
"We also believed the timing of the final Buy-One-Get-Three Free event in October would do more to offset earlier traffic declines than it did."
Analysts at Jefferies were likewise surprised by the dramatic drop in sales. On Friday, the firm downgraded shares of Men's Wearhouse to "hold" from "buy," slashing their price target to $32 from $67.
While Jefferies said that transitioning away from the Buy-One-Get-Three Free promotion is still the correct strategy, "We've seen the movie before where a major change in tactics takes a long time to resonate."
The promotions at Jos. A. Bank were famously spoofed on NBC's "Saturday Night Live." In the sketch, a mom says she buys the suits to clean up messes, because they're "effectively cheaper than paper towels."
Men's Wearhouse said that comparable sales at its Men's Wearhouse and K&G stores increased 5.3 percent and 3.7 percent, respectively, in the quarter, adding that its legacy brands should post same-store sales gains of 3 percent to 4 percent in the fourth quarter.
Men's Wearhouse now expects adjusted earnings per share to fall between $1.75 and $2 for the full year, compared with its previous guidance of $2.70 to $2.90.
"We are focused on and committed to rebuilding the Jos. A. Bank profit model and remain confident our long-term strategy is the right one despite the disappointing short-term results," Ewert said.
The company will officially announce its third-quarter results on Dec. 9.
Disclosure: NBC is CNBC's sister company.
