What to Watch From Men's Wearhouse (Besides Jos. A. Bank)

What can investors expect when Men's Wearhouse (NYSE: MW  ) reports earnings this week? Most of analysts' and investors' attention will likely center on the drama-filled merger/buyout of Jos. A. Bank (NASDAQ: JOSB  ) , but investors should keep their excitement in check and focus on the fundamentals and operating performance. Now that Men's Wearhouse is pushing further from its large-format store chain K&G, long a drag on earnings, shareholders should get an idea of how the better parts of the business are running, such as the tuxedo rentals and recent brand acquisitions.

The big news
Media and analysts are intently focused on any updates regarding Men's Wearhouse's just announced purchase of its next biggest competitor, Jos. A. Bank, for $1.8 billion. This mornings announcement came on the heels of the first encouraging news investors had heard since the two companies began exchanging offers. The last update came March 3, when both companies announced they had entered into a non-disclosure agreement exchanging confidential business information and a draft merger agreement. 

Men's Wearhouse will be paying the aforementioned $1.8 billion for Jos A Bank, giving the company a per-share value of $65. Clearly, Jos A Bank's move to acquire Eddie Bauer convinced Men's Wearhouse to up their own bid and seal the deal.

While this is the most intriguing story to do with either company, investors should closely watch the actual business.

Things to watch
In recent periods, Men's Wearhouse showed some weakness in its industry-leading tuxedo business-- traditionally a great performer with high margins and great free cash flow. It's an important and potentially lucrative segment for Men's Wearhouse as the tuxedo rental business remains largely fractured between corporate giants and independent shops. The bread-and-butter men's suit segment is a much less appealing business with very little growth prospects. In order for Men's Wearhouse to materially grow its sales and earnings from the segment, it needs to take market share from competitors bigger (think Macy's) and smaller (Jos. A. Bank).

In terms of what to expect on the numbers, keep in mind that Men's Wearhouse has always had weakness in its fourth quarter and typically posts a loss. On the other hand,peer men's apparel retailers have had better-than-expected results. As mentioned by fellow Fool Rich Duprey, both J.C. Penney and Macy's specifically cited men's dress apparel as a bright spot in earnings. Regardless of where exactly earnings come in, investors need to remain vigilant to the operations and not solely the headline-generating stories.

Full-year 2014 guidance will be especially insightful as Men's Wearhouse trades at a rather hefty 20 times forward earnings ratio. For a business that is only modestly growing store level sales and earnings, the ratio implies the market's confidence in the merger. That bet, until there is ink on the paper, is purely speculative.

It's been a rough and tumble 12 months for Men's Wearhouse, and the coming periods will be just as exciting. Just make sure to make your investment decision on the underlying business and not purely the hype. What is now the nation's juggernaut suit seller and tuxedo rental business, Men's Wearhouse has more work to do yet.  

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