Seems like with the latest quarterly report, everything is working right for JOSB. The stock reacted well to Mr. Black's announcement to pick up the pace of expansion, and analysts are tripping over each other to recommend the stock at the expense of its peers. At 470 stores, there seems to be no reason in principle why they can't expand to 600 stores, a goal set not by Mr. Black but his predecessor. It seems like some corporate form of Manifest Destiny that has been pursued for years.

Store expansion has been easy financially, they're all being opened with free cash flow with still cash to spare. A new store has an accelerated growth curve until it hits its peak in about five years, then plateaus. Because for years JOSB has had such an aggressive expansion program, it stands to reason their earnings history has been so good.

But....there is an upper bound to which the company can expand and saturate its market, and I propose they may already be hitting that limit. If you look at Starbuck's play book, it looked like they could expand to infinity too, even while in cases having stores within a few blocks from each other, or in some cases even across the street from each other. Their same store sales were looking great too, until the current recession proved that a $2 or $5 cup of coffee is discretionary. Can the US market support 600 stores? Where is the unserved need? We have a number of people posting on this message board how the stores appear vacant throughout a good part of the day.

JOSB has been treating their stores like milk cows, just keep milking and milking and expect the milk to never run dry. At one point does their customers have enough suits? When do they no longer have room in their closets for all the crazy bargains they've been offering at an accelerated rate this last year. It used to be the best multiple suit sale was Buy One Get One Free, now they offer variations of Buy One Get Two Free. It used to be Super Tuesday was offered exactly twice a year, before Father's Day and before Christmas, now it's more like four times a year. Their sales are definitely getting more aggressive as they try to make their numbers and convince analysts that they are doing great in a down market.

Through some financial wizardry they make their top line without trashing their bottom line to bad, although their gross margins have been slipping. It's hard to tell exactly where they make their money because their numbers are so opaque in the 10-K/Qs (part of which is due to them being vertically integrated). But this last quarter their Direct Connect sales were down, not up, which is looking like the stores were trying to fill requests locally rather than go through Catalog. Looks like the milk is drying up there.

And another downside to these crazy sales is employee retention. Their sales associates are paid on commission, and the more the product is discounted, the less in their paycheck. Even in this economy, if you have to get dressed up in a suit every day to go make as much as a Burger King employee, you start thinking about finding other opportunities. I'm already starting to see turnover in local stores, and this can't be good for customer service. A commission structure on reduced sale price is very unattractive for good candidates to replace the ones that leave.

I say this hell bent on leather trip to get to 600 stores is going to stall the company. These crazier sales to make their numbers is just going to exhaust their customers and their staff and most metro areas where they have a presence doesn't need another JOSB location to serve customer who are already well served. How do you increase sales when a customer stops shopping at one JAB location near his job because another one just opened up near his home? Crazy!