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A Second Look at Men's Wearhouse

Men's Wearhouse's (NYSE: MW  ) first-quarter earnings were more robust than expected, prompting the clothing retailer to make a few alterations in hopes of continuing to accent the positive.

Bolstered by healthy tuxedo rentals, increased store traffic, and lower product costs, the company reported that net income jumped 27% from the prior-year period to ­­$28.9 million, or $0.53 per share. Total sales increased 5.6% to $434.6 million and same-store sales inched up 2.7%. The Houston-based retailer beat its own EPS guidance by about $0.06 and topped Wall Street estimates by $0.05 per share.

You might say the company is on a tear and wants it to continue. Expect Men's Wearhouse to make several changes before the end of this year, including expanding its dry cleaning business beyond its current location in Houston. And management is focusing on its strong suit by introducing new designer brands to the tuxedo rental business. A smart move, considering there was a surprising 25% increase in same-store tuxedo rentals in the first quarter. Men's Wearhouse, which also operates K&G and Moores stores, targets cost-conscious consumers, so expect those designer-brand rentals to run about $150.

Most promising, however, is the company's expansion of its rental-to-retail business through incentives to employees and customers to lure more retail sales after a tuxedo rental.

"More retail customers lead to more earnings per share and that's what we're all here for," Chief Executive George Zimmer said during the conference call Wednesday.

Don't expect the retailer to mull over cold feet. Management is kissing its San Francisco Bride to Joy stores goodbye, saying during the conference call that it didn't "like the small-store concept [those stores] were employing."

Selling, general, and administrative expenses increased to 31.4% of revenue, still healthy compared with competitor Jos. A. Bank's (Nasdaq: JOSB  ) margin of 42.7%. SG&A was lower than management's initial expectations because of reduced advertising spending. An aggressive television and radio advertiser, the company anticipates additional advertising expenses over the balance of the year.

Men's Wearhouse is projecting same-store sales to grow 3% to 4% in the second quarter, with an EPS of $0.53 to $0.55 and FY 2006 EPS of $2.33 to $2.40.

Business is a mixed bag for today's apparel chains. Women's clothier Talbots (NYSE: TLB  ) reported that April same-store sales jumped nearly 11%, while first-quarter net income fell 21% to $27.4 million, or $0.51 per share. Chico's (NYSE: CHS  ) same-store sales rose 5.4% but fell short of Street expectations of 7.7%.

But Men's Wearhouse is conservatively focusing on the stronger aspects of its business and making a concerted effort to lure more retail customers with its rental boon. The time might be right to try this stock on for size.

Fool contributorAmanda Tylerdoes not own shares of any company named above.

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