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Shares Fall as Men's Wearhouse Loss Widens

Zacks Equity Research

Shares of The Men's Wearhouse Inc. (MW) fell about 3%, as the company disappointed investors with its fourth-quarter fiscal 2013 results. Inclement weather and persistent weakness in consumer spending weighed upon the company’s performance. The company delivered adjusted quarterly loss per share of 38 cents that widened  from than the Zacks Consensus Estimate of loss of 11 cents and the year-ago quarter loss of 10 cents.  

Including one-time items, loss came in at 64 cents per share. Results were also adversely affected by the loss of a week owing to calendar shift.

For the full year, adjusted earnings came in at $2.21 per share, way below the Zacks Consensus Estimate of $2.47 per share. Including one-time items, earnings were $1.70 per share.

Overall, apparel retailers are facing a tough time due to shift in consumers’ shopping preferences and an aggressive promotional environment, which weighed on margins without driving much traffic. Recently, apparel retailers came up with soft sales results for February. The Gap, Inc. (GPS) witnessed a 7% decrease in comparable-store sales (comps) while The Buckle, Inc. (BKE) reported a 1.4% fall in comps.

Coming back to Men's Wearhouse, its top line decreased 7.9% year over year to $560.6 million and lagged the Zacks Revenue Estimate of $620 million. For fiscal 2013, sales dropped 0.6% to $2,473.2 million, lagging the Zacks Consensus Estimate of $2,545 million.

Comparable store sales declined 2.5% in the quarter.

Segmental Performance

The Retail Segment’s total revenue (representing 90.0% of total sales of 2013) decreased 8.5% year over year to $497.3 million The fall was due to 8.1% revenue decline in Retail Clothing Product to $419.1 million, along with a 11.6% revenue fall in Tuxedo Rental Services to $43.5 million. Alteration and other services division’s sales decreased 9.2% to $34.6 million.

Corporate Apparel Segment’s (representing 10% of total sales of fiscal 2013) revenues fell 2.7% to $63.3 million.

The company stated that the shift in tuxedo revenues and the deleveraging of occupancy costs affected the margins during the quarter.

Gross profit decreased 14.1% to $208.8 million while gross profit margin contracted 271 basis points year over year to 37.3%. Moreover, operating loss substantially widened to $49.7 million from $6.5 million loss in the year-ago quarter.

Other Financial Aspects

Men’s Wearhouse ended the quarter with cash and cash equivalents of $59.3 million, long-term debt of $87.5 million and shareholders’ equity of $1,009.1 million, excluding non-controlling interest of $14.0 million. Capital expenditure for fiscal 2013, stood at $108.2 million.

Merger Update

Recently, Men’s Wearhouse sealed a merger deal with men’s apparel retailer Jos. A. Bank Clothiers Inc. (JOSB). As per the deal, Men’s Wearhouse will acquire all shares of Jos. A. Bank in an all-cash transaction of $1.8 billion or $65.00 per share.

While Jos. A. Bank shareholders will benefit from the value quotient, Men’s Wearhouse shareholders will gain from estimated annual synergies of $100–$150 million arising from the merger of the companies over the next three years. Moreover, the transaction is projected to be accretive to Men’s Wearhouse’s earnings in the first full year.

The combination of the two companies is expected to create a behemoth men's apparel retailer with over 1,700 stores in the U.S., about 23,000 employees and a pro-forma sales of $3.5 billion. The merger will combine the complementary businesses of both companies, creating the fourth largest men’s apparel company with increased scale and breadth that will cater to a wider customer base.

Currently, Men’s Wearhouse has a Zacks Rank #4 (Sell).

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