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

It's looking more and more likely that the two nationally leading suit retailers will become one, but investors need to keep an eye on the operating business of Men's Wearhouse regardless.

Mar 11, 2014 at 6:30PM

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.  

More from The Motley Fool 
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal "The Motley Fool's 3 Stocks to Own Forever." These picks are free today! Just click here now to uncover the three companies we love. 


Michael Lewis has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers