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Men's Wearhouse (MW): Zacks Rank Buy

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The Men's Wearhouse Inc. (MW) reported a fiscal second-quarter earnings surprise of 2.7% early this month, marking its 9th beat in the past 10 quarters. Shares of this menswear retailer have gained nearly 31.3% in the past two months. Furthermore, a fairly impressive dividend yield of 2.1% and an enhanced earnings per share guidance for the full year make this Zacks #2 Rank (Buy) an attractive pick for investors looking for both growth and income.

Fiscal Second-Quarter Beat

On September 5, The Men's Wearhouse reported fiscal second-quarter 2012 earnings of $1.15 per share, beating the Zacks Consensus Estimate of $1.12 and increasing 3.6% year over year. Results were driven by increased gross margin in the retail segment and a lower tax rate.

Revenue crept up 1% year over year to $662.3 million from $655.5 million. However, it marginally missed the Zacks Consensus Estimate of $663 million.

Gross profit increased 3.6% to $320.3 million from $309.2 million in the year-ago quarter, primarily due to lower costs of goods sold as a percentage of sales. Consequently, gross profit margin expanded 120 basis points to 48.4% from 47.2%.

Increased merchandise gross profit led to a 2.9% increase in operating income to $91.6 million from the prior-year level of $89.0 million. Consequently, operating margin expanded 20 basis points to 13.8%.

Promising Guidance

Men's Wearhouse raised its guidance for fiscal 2012, while also setting out targets for the third and fourth quarters of fiscal 2012. The company expects earnings per share between $2.74 and $2.80 in fiscal 2012, up from its prior guidance of $2.70 to $2.78.

Earnings per share for the third quarter are forecasted at 95 cents to 98 cents, while the fourth quarter is seen at 12 cents to 15 cents.

Total net revenue for fiscal 2012 is anticipated to increase between 4.8% and 5.6%, versus the prior guidance of 4% to 5%. Sales for the third quarter are expected to advance between 8.8% and 9.3%, while the fourth quarter is forecasted to increase 11.3% to 11.8%.

Guidance Drives Estimates

The Zacks Consensus Estimate for fiscal 2012 rose 2.2% to $2.78 per share in the last 30 days on upward movement in 5 of 6 estimates. This represents year-over-year growth of 17.2%.

The Zacks Consensus Estimate for fiscal 2013 advanced 1.6% to $3.11 per share over the same time frame as 5 of 7 estimates moved upwards. This reflects year-over-year growth of 11.8%.

Strong Dividend

In addition to maintaining a steady earnings growth, Men's Wearhouse has been rewarding shareholders with regular quarterly dividend payments for the past several years. Currently, the company pays a quarterly dividend of 18 cents per share, which yields a solid 2.1%. The company has a payout ratio of 25%, while its 5-year annual dividend growth rate stands at 21.98%.

Favorable Valuation

Men's Wearhouse currently trades at a forward P/E of 12.4x, reflecting a 24.4% discount to the peer group average of 16.4x. On a price-to-book basis, shares trade at 1.6x, a 41.6% discount to the peer group average. The company's compelling fundamentals are well supported by its long-term estimated earnings per share (EPS) growth rate.

Strong Chart

The chart below indicates a steady growth in the company's share price in the last two months, reflecting an upside of about 31.3%. Currently, shares of Men's Warehouse are trading above its 50 and 200-day moving averages. Average volume also remains fairly strong at roughly 595K daily.

Operating nearly 730 core Men's Wearhouse and Moores brand full-line stores in the United States and Canada, the company has successfully expanded the demographic appeal of these brands. Furthermore, the company's strong brand positioning, strategic marketing initiatives, store expansion plans, consistently rising estimates and an impressive dividend yield offers considerable upside potential.

Founded in 1973 and headquartered in Houston, Texas, Men's Wearhouse is among the leading specialty menswear retailers in the United States and Canada with 1,153 stores. The company mainly offers a full range of men's designer, brand name and private label suits, suit separates, sport coats, slacks, sportswear, outerwear, dress shirts, shoes, and accessories for men, as well as tuxedo rentals. The company operates its stores mainly under the brand names Men's Wearhouse, Moores, K&G stores and Men's Wearhouse and Tux stores. Its K&G stores also feature a collection of women's apparel. The company sells its products through menswearhouse.com and kgstores.com. It holds a market capitalization of $1.75 billion.

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