Could a Combined Men's Wearhouse and Jos. A. Bank Dominate Men's Retail?

Men's Wearhouse (NYSE: MW  ) will release its quarterly report on Wednesday, and investors have seen the stock soar as the men's clothing retailer remains in the spotlight. With recent merger proposals to join forces with rival Jos. A. Bank Clothiers (NASDAQ: JOSB  ) , Men's Wearhouse hopes to create a renaissance in men's formal wear that could drive the combined entity's results higher and fight back against high-end department stores Nordstrom (NYSE: JWN  ) and Macy's.

Men's Wearhouse and Jos. A. Bank have been jousting for months, as both companies fight for the same demographic of professional men seeking suits and other business attire. Yet, the problem that the entire industry has faced is that growth has been hard to come by, and Men's Wearhouse has investors expecting yet another earnings pullback. Is a merger the answer to Men's Wearhouse's problems, or will a combined entity just have bigger problems competing with other, less-specialized retailers? Let's take an early look at what's been happening with Men's Wearhouse over the past quarter, and what we're likely to see in its report.

Stats on Men's Wearhouse

Analyst EPS Estimate

$0.86

Change From Year-Ago EPS

(9.5%)

Revenue Estimate

$627.14 million

Change From Year-Ago Revenue

(0.6%)

Earnings Beats in Past 4 Quarters

1

Source: Yahoo! Finance

Will Men's Wearhouse earnings start growing again?
Analysts have pulled back on their views on Men's Wearhouse earnings in recent months, cutting October-quarter estimates by $0.14 per share and reducing full-year fiscal 2014 and 2015 projections by 9% to 11%. The stock, though, has soared, climbing 33% since early September.

From an earnings perspective, Men's Wearhouse disappointed investors early in the quarter, with July quarter results that included a 2.3% sales drop that sent earnings per share down by more than 25%. Comparable-store-sales gains of 0.7% didn't create much confidence in the retailer, and Men's Wearhouse cut its full-year-earnings guidance by $0.30 per share despite offering positive opinions about its turnaround strategies.

But most of the attention on Men's Wearhouse this quarter came on the M&A front. In October, Jos. A. Bank offered $2.3 billion to buy out the men's retailer, although Men's Wearhouse argued that the $48 per share price tag was too discounted for it to consider. Activist investors in Men's Wearhouse stock weren't pleased with its snap rejection of the offer, including hedge fund Eminence Capital, which argued that a combination is the company's best chance to fight against upscale department stores Nordstrom and Macy's. But Jos. A. Bank withdrew its bid in mid-November.

Perhaps in response to investor pressure, Men's Wearhouse followed up last month by turning the tables on Jos. A. Bank, making its own offer to buy out its rival. Currently, Jos. A. Bank shares trade above the $55 per share offer that Men's Wearhouse made, suggesting that it might have to raise its bid if it wants to seal the deal. Jos. A. Bank has said it will evaluate Men's Wearhouse's proposal.

In the Men's Wearhouse earnings report, it'll be essential to look beyond the takeover controversy to see the company's fundamentals. With the key holiday season ongoing, early signs of success or failure could show how important it is for Men's Wearhouse and Jos. A. Bank to stop their infighting and stand up to Nordstrom, Macy's, and other retailers on their own terms.

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