Foolish Forecast: Casual Male's Big Letdown

Plus-size men's retailer Casual Male (Nasdaq: CMRG  ) will report fourth-quarter 2007 financial results tomorrow. Let's see whether the haberdasher still can make outsized gains for investors.

What analysts say:

  • Buy, sell, or waffle? The number of analysts recommending you slip into Casual Male with a buy rating is slowly dwindling. Only four rate it a buy, down from seven at the start of the quarter, while the number who say "hold" has risen to six. None yet say you ought to put the retailer on sale.
  • Revenue. Sales are expected to fall 6% to $137.3 million, but that probably has more to do with the extra week of selling in last year's quarter.
  • Earnings. Analysts are expecting profits to get more threadbare, however, with earnings falling 25% to $0.15 a share.

What management says:
The retail sector's been tough enough lately without bad decisions to needlessly compound the hurt. Yet a year after Casual Male bought specialty tailor Jared M., a business that caters to sports figures, it decided the move wasn't as good as it first thought. Casual Male announced that it made a big mistake, and that it would instead unload the line ASAP. The business was taking longer and proving more difficult than Casual Male had planned, and management decided it was diverting focus from its main task of selling big-and-tall clothes.

Undoubtedly, sticking with a concept that doesn't work will drag down overall performance, but the short amount of time Casual Male gave to the Jared M. concept suggests that someone didn't do their homework ahead of time. The quick turnabout reeks of the kind of mismanagement that plagued Casual Male when it first crashed into bankruptcy a few years ago.

What management does:
The big-and-tall retailer has been trying other measures to expand its reach into men's closets, if not their lives. For example, Casual Male acquired a plus-sized lifestyle website, launched an Internet-based shoe-sales business, and put out a catalog with its offerings. In light of the Jared M. demise, however, one might question management's stick-to-it-iveness if these efforts also hit a speed bump. Yet if its comps can hit the mid-single-digit range the company has forecast, management does expect profits to improve -- a welcome development.

Margin

10/06

02/07

05/07

08/07

11/07

Gross

44.9%

45.5%

45.9%

46.2%

46.0%

Operating

5.5%

5.7%

5.6%

5.2%

4.3%

Net

3.9%

9.1%

8.9%

8.7%

8.0%

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.

What CAPS Fools Say:
Here's how Casual Male measures up against some of its peers and competitors on Motley Fool CAPS:

Company

Market Cap (billions)

Trailing PE Ratio

CAPS Rating

Casual Male

$181 million

5.3

**

Men's Warehouse (NYSE:MW)

$1.3 billion

9.1

***

Jos. A. Bank Clothier (NASDAQ:JOSB)

$416.1 million

8.7

****

Data from Motley Fool CAPS and Yahoo! Finance.

One Fool says:
Management hasn't recently proved very adept at navigating these difficult economic times. Perhaps dumping the specialty retail line was a smart move, but it hardly seems like the company gave Jared M. enough of a chance to prove itself. If Casual Male was unable to make a go of a men's retail business, how are investors supposed to believe that it can succeed with a lifestyle website that represents a completely different type of business model (even if it caters to the same target clientele)?

The weather has been tricky this winter, starting off warm but getting colder as the season progressed. That initially sank Casual Male four quarters ago, when results disappointed. I wouldn't expect much upside surprise from the company this time, either. Still, Casual Male has been knocked down by the market, so it's selling at a cheaper valuation than its rivals. Any hope of a resurgence could end up being more than a casual chance.

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