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Casual Male Grows Up

Walking into a Casual Male (Nasdaq: CMRG  ) store used to take some guts. With a store name like "Big & Tall," you actually felt like you were "fat and geeky." It was only better than the "husky" clothes overweight kids had to wear. Yet for large, even athletic, men, there were few other places to turn. I've bought suits at J.C. Penney (NYSE: JCP  ) , which touts its large-size lines, where the seamstress had to basically rebuild the pants so that they fit. When you have size 48 shoulders and a 34 inch waist, the amount of fabric that needs to be taken in could cover a tent, and it essentially changes the look and fit of the clothes.

That's where Casual Male has excelled. The largest large-size retailer has met the needs of men who don't fall within the proportions that clothing manufacturers typically sell in department stores. Sales in the second quarter rose to $111.8 million from $100.6 million a year ago, while profits rose to $3.4 million from $2 million. Same-store sales, also known as comps for stores open at least a year, were up 7% from last year's second quarter at its namesake stores.

Still, us alpha-male consumers felt the "big and tall" moniker was a little dated. Enter the Casual Male XL concept. Gone are the stale black-and-yellow signs, replaced with updated navy-and-orange ones that have a more hip, urban feel. A fresh name and logo gives the store a more modern, athletic look and after a select city test last year, has been rolled out nationwide.

The retailer has taken a page from the woman's plus-size marketing world. In fact, retailers like Lane Bryant -- the 750-store subsidiary of Charming Shoppes (Nasdaq: CHRS  ) -- and United Retail Group's (Nasdaq: URGI  ) Avenue stores barely use the words plus-size, and certainly queen-size has become anathema. Casual Male has transformed itself from a bankrupt operation in 2002 to a leading retailer for men. Leading the turnaround effort has been improving margins. Gross margins have nearly doubled from 2002, when they hovered around 23%, to trailing-12-month margins greater than 43% today. Quarterly margins have been improving as well, as you can see from the table below.

CMRG Gross Margins

2006 2005 2004
Q1 43.8 41.4 40.1
Q2 * 43.4 41.1
Q3 * 41.1 40.5
Q4 * 46.0 42.6

In the tight retail market, Casual Male has been performing admirably against the likes of men's retailers Men's Warehouse (NYSE: MW  ) and Jos. A. Bank (Nasdaq: JOSB  ) , as well as department stores like Penney's and Federated (NYSE: FD  ) . As the retailer continues to reach for margin growth, it should lend itself to a big and tall improvement in the stock price.

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Fool contributor Rich Duprey owns shares of Casual Male but does not own any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.

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