Men's Wearhouse shares rise on strong guidance

NEW YORK (AP) -- Shares of The Men's Wearhouse Inc. jumped nearly 15 percent Thursday, after the retailer reported an improved second-quarter performance on solid sales, better margins and a lower-than-expected tax rate and offered full-year earnings guidance above Wall Street estimates.

THE SPARK: Men's Wearhouse reported net income of $59.4 million, or $1.15 per share, for the quarter that ended July 28. That's up from $57.1 million, or $1.09 per share, in the same quarter last year. Excluding one-time items, the company posted adjusted earnings of $1.11 per share. Total revenue rose 1 percent to $662.3 million.

Analysts polled by FactSet expected adjusted earnings of $1.12 per share on $662.9 million in revenue.

But the company projected a fiscal 2012 profit of $2.74 to $2.80 per share, while analysts expected $2.71 per share.

THE BIG PICTURE: Men's Wearhouse, based in Houston, is one of the largest specialty retailers in North America. It credited the profit increase to better profitability at its retail business and a slightly lower-than-expected tax rate.

CEO Dough Ewert said sales trends were better than expected as shoppers bought more men's clothing both at full and sale prices. Additionally, its tuxedo rental revenue improved on higher prices, more rentals and increased sales of tuxedo accessories.

Revenue from stores open at least a year rose 4.4 percent for the quarter at the company's namesake stores. The metric is considered a key indicator of retail health, because as it excludes sales at recently closed or opened sites.

It also forecast earnings per share of 95 to 98 cents per share for its third quarter and 12 to 15 cents per share for its fourth. Analysts had forecast earnings of 97 cents per share and 9 cents per share respectively.

THE ANALYSIS: Wedbush analyst Betty Chen backed her "Neutral" rating for the company, but raised her price target by $7 to $37.

Chin said that the strong second-quarter results and improved third and fourth quarter predictions should give investors better insight into the company's ability to drive sales at its major businesses, despite tough comparisons to year-ago periods.

Stifel Nicolaus analyst Richard Jaffe reiterated his "Buy" rating, crediting to improved sales at the company's flagship Men's Wearhouse brand, noting that its 4.4 percent increase in comparable store sales indicates that shoppers bought its clothes both when they were on sale and when they weren't.

Jaffe also pointed to the increase in sales at the company's higher-margin tuxedo business, which was driven by higher prices, and increases in the number of rentals and rental rates, along with more accessory sales.

THE SHARES: Up $4.95, or 16 percent, to $36.79 in afternoon trading, after peaking at $36.98 earlier in the day. Over the past 52 weeks, the company's shares have traded between $24.50 and $40.97.