Which Companies Are Boosting Spending and Hiring?

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More Stores for Jos. A. Bank

Despite the gloomy outlook for consumer spending, there are even some retailers that are in expansion mode. Jos. A. Bank Clothiers (JOSB) has a unique business model that's helped it thrive during the downturn: It sources classic men's fashions in low-cost regions and sells clothing at 490 U.S. locations without having to forfeit any profit to middlemen distributors.

"[The company has] no fashion or inventory risk. The same green sweater vest that gets sold in a store today is the same one they sold two years ago," says Green at ClearBridge Advisors. "They're selling staples to the Middle America workforce." Bank's net sales rose 10.7 percent from 2008 to $770.3 million in 2009.

The company's success in increasing revenue during the recession allowed it to redirect capital toward building more stores. Square footage increased by just 3.0 percent in 2009, compared with 9.0 percent in 2008, but is accelerating to 7.0 percent in 2010, says Green. Bank also plans to open five new factory outlet stores this year and another five to 10 outlets in 2011. Through a partnership with The Knot (KNOT), a media company focused on weddings and other life events, Bank is branching into tuxedo rentals, hoping to gain share in a fragmented market by taking advantage of its existing store base. The company is also overhauling its website in an effort to boost its Internet sales.

Specialty retailers such as Fossil (FOSL) and Steven Madden Ltd. (SHOO) are also stepping up spending and expansion efforts, says Don Hodges, manager of the Hodges Fund (HDPMX).

MSC Benefits from Reinvestment

Shareholders are increasingly frustrated that companies aren't using their cash to earn bigger returns, but they're not necessarily happy to see it invested if profit margins shrink in the short term as a result. The shares of MSC Industrial Direct Co. (MSM), one of the largest direct marketers and distributors of metalworking and maintenance supplies to industrial companies, were hit in January and February after the company said it saw an inflection point and was reinvesting to expand its business, lowering its excess operating margin.

But MSC's bet is paying off. The company's average order size is up 12 percent from a year earlier and its fill rate on incoming orders is 99 percent, which means it consistently has had a greater number of products in stock. That enables MSC to take market share from local competitors that lack the capital to maintain comparable inventory levels in all products, says ClearBridge's Green. The company has also increased its sales force by 8 percent over the last two years and plans to hire additional field representatives this year. The stock has recovered from its first-quarter decline, up 2.7 percent year-to-date as of Sept. 2, and 13 percent off its Jan. 29 low.

While some companies may be boosting spending, they are doing so carefully in the current economic environment. The firms that are stepping out on a limb are doing so because they know they have a reliable safety net below: either comfortable profit margins or guaranteed demand from new market opportunities. For the rest of corporate America, the "animal spirits" remain caged—a discouraging state of affairs for an economy bumping along at a subpar growth rate.

Bogoslaw is a reporter for Bloomberg Businessweek's Finance channel.

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