Foolish Forecast: A Bespoke Quarter at Men's Wearhouse

Men's apparel retailer Men's Wearhouse (NYSE: MW  ) will report fourth-quarter 2006 financial results on Wednesday, March 7.

What analysts say:

  • Buy, sell, or waffle? Nine analysts cover the testosterone-oriented retailer. Seven of them predict it will flex its muscles, and they've rated it a buy. Two say "hold."
  • Revenues. Men's Wearhouse will do yeoman's work this quarter, with sales forecast to grow 12% to $557.4 million.
  • Earnings. Profits themselves are expected to show a 12% increase to $0.75 per share, though it's apparently less than what analysts were originally expecting.

What management says:
Is it Men's Wearhouse or the sector? If you studied the performance of competitors Casual Male (Nasdaq: CMRG  ) and Jos. A. Bank (Nasdaq: JOSB  ) last quarter, you'd say the retailer's problems were all its own. Yet according to market researcher NPD Group, sales have supposedly fallen 10% for the menswear industry as a whole. But as my Foolish colleague Matt Koppenheffer has suggested, if that drop is based on the trend towards lower-priced suits, Men's Wearhouse may be tailor-made to capture greater sales. However, the forecast also projects the effects of an extra retail week, which Men's Wearhouse figures will affect profits by about $0.06 per share.

What management does:
Freed from the drag of discontinued operations like its Eddie Rodriguez stores, Men's Wearhouse's margins have been steadily improving. The company has been able to bring more customers into the store, as evidenced by increasing same-store sales, while continuing to grow its tuxedo rental business. That probably explains why it's pursuing the acquisition of Federated's (NYSE: FD  ) After Hours formalwear chain, which it hopes to close on sometime in the first half of 2007. With tuxedo rentals carrying significantly higher margins than the traditional store lines, look for further improvements when the deal is finally done.

Margin

10/05

01/06

04/06

07/06

10/06

Gross

39.9%

40.4%

40.9%

41.7%

42.4%

Operating

9.1%

9.6%

10.1%

10.9%

11.5%

Net

5.7%

6.0%

6.3%

6.8%

7.1%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
The men's retailing business is crowded and competitive. With department stores on one end and discounters like Syms (NYSE: SYM  ) on the other, the middle niche has generally been dominated and fought out between Men's Wearhouse and Jos. A. Bank. At the high end, you've got privately held Brooks Brothers, and in niche markets, you've got retailers like Casual Male, which caters to plus-size males. Decent suits at affordable prices have been Men's Wearhouse's calling card, though the company hasn't always been able to follow through on that promise.

While apparel retailers of all pinstripes seem to find snags in operations these days, Men's Wearhouse looks like it might be able to sew up the quarter, though at current prices it doesn't seem particularly cheap.

Related Foolishness:

Men's Wearhouse has earned a three-star rating from Motley Fool CAPS, our investor intelligence community. You can add your voice to the new stock rating service by joining today. It's free!

Fool contributor Rich Duprey owns shares of Casual Male, but he 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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