Bear of the Day: Men's Wearhouse (MW) - Bear of the Day
24 Septembre 2013 - 10:35AM
Zacks
What's happening in the world of men's discount dress wear? Two
stores I have shopped at for years are frequenting the bottom of
the barrel in the Zacks Rank lately.
First it was Jos. A. Bank Clothiers (JOSB) in early
summer with an earnings miss and cloudy guidance. I had always
wondered how JOSB could offer such big discounts with "buy 1, get 3
free" types of store sales. My speculation was that the shirt they
charge $80 for is made for under $10 in China.
Now this month, it appears that declines in
consumer spending are taking their toll on the outlook of The Men's
Wearhouse (MW). On September 11, the company posted adjusted Q2
earnings of $1.01 per share that missed the Zacks Consensus
Estimate of $1.15 and decreased 12.2% year over year. Including
one-time items, earnings came in at 85 cents per share.
Citing macroeconomic challenges, Men's Wearhouse
lowered its fiscal 2013 guidance and shares of this specialty
retailer of menswear in the United States and Canada plunged more
than 14% the next day.
And analysts who had actually been raising
estimates before the end of the second quarter were sent scrambling
the other way, taking this year's EPS in the past two weeks down to
$2.44 from $2.77 and 2014 down to $2.82 from $3.02. The most recent
notches down in estimates last week caused MW to drop from a Zacks
#3 Rank (Hold) to a #5 Rank (Strong Sell) this week.
Details of the Decline
Revenues decreased 2.3% year over year to $647.3
million and missed the Zacks Revenue Estimate of $675 million.
Retail Segments total revenue (representing 91.7%
of total sales) decreased 1.9% year over year to $593.4 million,
reflecting a 1.1% decrease in Retail Clothing Product to $408.7
million, coupled with a 4.2% decline in Tuxedo Rental Services to
$147.7 million. Alteration and other services division’s sales
decreased 1.3% to $37.1 million.
Corporate Apparel Segment’s (representing 8.3% of
total sales) revenue declined 6.6% to $53.8 million.
The company stated that the shift in tuxedo
revenues and the deleveraging of occupancy costs affected margins
during the quarter. Consolidated gross profit decreased 3.6% to
$308.8 million, while gross profit margin contracted 65 basis
points year over year to 47.7%.
Operating income plunged 27.1% to $66.8 million,
while operating margin contracted 351 basis points to 10.3%.
Causes In Question
These results and management's outlook, caused the
company to lower its fiscal 2013 earnings guidance. They now expect
earnings per share to be in the range of $2.40–$2.50 for 2013, down
from its earlier guidance range of $2.70–$2.80. The company also
lowered its comps growth rate by 2% at Men's Wearhouse and
Moores.
If MW management wants to blame macroeconomic
factors, they have a lot of company amidst the "triple-A" amigos of
retail fashion, Aeropostale (ARO), American Eagle (AEO), and
Abercrombie & Fitch (ANF), who all bombed recently and fell to
#5 Ranks.
One driver may be that the clothing market has
become so competitive, with sale after sale causing retailers to
undercut each other and their own margins. But if consumer spending
overall were taking a nose-dive, we would see it in a lot more
places, from employment data and manufacturing surveys to consumer
confidence and even the price performance of the XLY sector ETF,
one of the leaders this year and throughout the bull market.
I think that some retailers just eventually go "out
of fashion" and can't compete on price alone with a Michael Kors
(KORS) brand.
But a possible "macro" explanation may be a
short-term shift in consumer spending toward bigger ticket items
caused by a unique combination of rising home equity values and
sales -- the wealth effect -- and the rise in interest rates
motivating consumers to "buy now" (cars, appliances, and other
durables) while interest rates are low.
I'll offer one more theory about MW and JOSB. Maybe
there is a trend toward more casual wear and less suits at work. In
my industry, all it takes is a bulge bracket bank to lay off 5,000
"suits" -- which seems to happen at least once a quarter -- and you
see a lot less of them downtown.
I just hope JOSB and MW right the ship soon and
don't go out of business. While I prefer to buy Kors and Ted Baker
ties, I love Pronto Uomo shirts, especially when I can get them on
sale at MW.
Kevin Cook is a Senior Stock Strategist for
Zacks where he runs the Follow The Money portfolio.
ABERCROMBIE (ANF): Free Stock Analysis Report
AEROPOSTALE INC (ARO): Free Stock Analysis Report
JOS A BANK CLTH (JOSB): Free Stock Analysis Report
MICHAEL KORS (KORS): Free Stock Analysis Report
MENS WEARHOUSE (MW): Free Stock Analysis Report
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