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Men's Warehouse Inc. (MW): Zacks Rank Buy

Jared Levy

Men’s Warehouse (MW)

Back in early January Men’s Warehouse hit the Rank-Buy list showing strong momentum in the stock and fundamentals.   In the time since, the stock has rallied 25% hitting a new 52 week high of $40.51.

That run was later justified by a stronger than expected earnings report on March 7th.  After this recent rally does Men’s Warehouse have more room to run?

Company Description The clothing company founded in Houston in 1973 has come a long way since its humble beginnings.  Although George Zimmer’s trademark motto hasn’t changed, (aside from his now distinctly scratchy voice) the company’s size, reach and profitability has soared.  So has its stock…

 In a world where competition for price and business is tough, Men’s Warehouse is not only guaranteeing “you’ll like the way you look” but they are honing in on a niche market that has become not only price sensitive, but more prudent and discerning in their purchases – The middle class.

Strong Earnings Trends The most recent upside surprise added to MW’s long string of earnings beats, bringing their average surprise to 24% over the past year.

MW reported a Q4 earnings loss of 7 cents (unadjusted), which was much less than the 13 cent loss Zacks Consensus Estimate going into the report.  The loss was also a huge improvement over the 19 cent loss in the year ago quarter.

The Men’s Warehouse brand of the business, which is one of four, saw revenues increase almost 10%.  It represents about 60% of the company’s total revenue. 

The retailer benefited from higher product margins which were driven mainly by increasing prices in the US and a favorable mix of higher margin products.  Gross margins for the quarter also increased 2.7% compared to Q42010.  Their top line sales of 562.2 million for the quarter did fall just a bit short of expectations of 563.1 million.

Redemption for the top line shortfall came in the company’s forward looking guidance.  For Q12012 Men's Wear expects earnings in a range of $0.53 to $0.54, and sales growth of 2 to 2.5 percent.  The current Zacks Consensus Estimate stands at 62 cents for the quarter, 8 cents higher than their top end.

For the full fiscal year 2012, MW expects earnings in a range of $2.70 to $2.78 per share, with sales growth of 4 to 5 percent.   Men's Wear anticipates gross margins in the year to continue to increase motivated by higher average unit retail prices and continued occupancy cost leverage.

Still Strong? Men’s Warehouse has maintained its Zacks Rank 1 and is delivering results fundamentally.  With a forward P/E of 15.24, the stock is fairly priced even considering the recent run. 

The reality is that continued performance will be dictated more by the broad market itself which is still chugging along.  That’s not to say one should throw caution to the wind and ignore any warning signals, but for now MW remains a momentum stock. 


Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.

This Week's Momentum Zacks Rank Buy Stocks:

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In the past week alone the company was sued by Samsung,  got a new price target of $710 by Barclays Capital and announced the release of their newer, faster and higher definition 4G iPad.  By the way, you can reserve a new iPad today starting at $499, for delivery on March 16th.

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  Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.


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