One Company Suffering From Irregular Trends in Retail

The decline in consumer spending reflects in the quarterly results of most retailers, although there have been a few exceptions. The Men's Wearhouse (NYSE: MW  ) is one such apparel retailer that reported discouraging second-quarter results; it missed consensus estimates on earnings and revenue, and its top line decreased 2.3% year-over-year to $647.3 million.

The month-over-month change in retail sales is shown below. For the period of May through July, retail sales were up 5.3% as compared to the same period a year ago. However, there's a shift in spending preferences toward car and home purchases, as consumers held back on purchasing apparel . In short, buyers are putting their dollars into things that are going to last, so apparel and shoes have dropped in priority.

Uncertainty ahead

For the holiday season, appliance sales are expected to rise 2.3%, and sales of home goods will grow 1.98%. In comparison, the men's apparel segment is expected to see the steepest decline of 3.62%. This is not good news for Men's Wearhouse.

Citing these macro-economic factors, Men's Wearhouse lowered its fiscal 2013 guidance. The company now expects earnings to be in the range of $2.40–$2.50 per share. Earlier, the company expected earnings to be $0.30 higher than this range.

The company has also reduced its expected comps growth rate by 2% at Men's Wearhouse and Moores. This resulted in a 14% fall in the company's share price after the results were released.

Men's Wearhouse saw revenue declines in both of its segments. Retail, which represents 91.7% of sales, saw a decline of 1.9% year-over-year to $593.4 million. The corporate apparel segment, which accounts for the rest, saw a decline of 6.6% to land at $53.8 million .

The company has been through difficult times that include firing its co-founder and then trying to create a fully vertical retail model from factory to stores by buying JA Holding in a $97.5 million deal . Shareholders haven't been impressed, and this shows in the company's stock price performance.

The money is somewhere else

The shift in consumer spending patterns has been driven by the fact that buyers want to take advantage of the still-low interest rates and hence are buying homes and cars . While this has created pressure on most retailers, specialty retailers are doing pretty well.

For example, consumers looking to save money on back-to-school purchases have been turning to discount retailers, and this is why many retailers have started offering deep discounts in order to entice back-to-school shoppers . As a result, despite the inconsistency in the overall retail sector, Dollar General (NYSE: DG  ) recently came up with record second-quarter results.

Dollar General reported an increase of 11.3% in revenue to $4.39 billion . Same-store-sales grew 5.1% on the back of higher store traffic and an increase in average transaction size.

Dollar General is expanding its footprint by opening new stores. In the first half of 2013, it opened 375 new outlets. The company has plans to open 650 new stores and remodel or relocate 550 stores this year, which seems justified, as it is seeing good traffic in its stores.

At the other end of the retail spectrum, fashion apparel retailer Michael Kors (NYSE: KORS  ) has continued to do well. Kors reported that its same-store-sales grew 27% in the previous quarter to $640.9 million .

At the end of the first quarter of fiscal 2014, Kors operated 442 stores globally . Kors expanded its footprint by opening 75 new stores, and engaged 114 new stores through licensing deals in order to increase sales. These initiatives should help the company keep its robust growth rate intact.

Moreover, Kors also has plans to expand its footprint in regions such as Europe and the Far East. The company will be opening 40 stores in these areas in fiscal 2014 while 100-125 stores are planned for China going forward. Kors should continue performing well on the back of these promising moves.


Conclusion

Men's Wearhouse's vertical integration attempt at a factory-to-stores concept by acquiring JA Holding hasn't yielded any results yet. The company's results have been weak and guidance was also reduced. All of this makes Men's Wearhouse a stock to stay away from, at least for the time being.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.


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