Sales and earnings continue to slide at Men's Wearhouse
Last fall, it seemed the biggest problem was integrating the acquired After Hours tuxedo rental operation from Macy's
Comparable sales fell 8.5% in U.S. stores during the first quarter, nearly identical to the 8.6% decline during the holiday season. The namesake Men's Wearhouse stores reported comps down 6.4%, with K&G stores sliding 14.1%. Management attributed the sales drop to lower customer traffic.
Gross margins held up reasonably well, off only 28 basis points as a percentage of sales. Margins on clothing sales improved a bit, but were more than offset by a lower mix of tuxedo rental sales -- which carry much higher margins.
As you would expect with this kind of sales decline, expense deleverage was a big hit to earnings. Occupancy expense grew to 14.98% of sales, an increase of 271 basis points over last year. Other operating expenses followed suit, up 378 basis points to 40% of sales. As retailers like Kohl's
Is there any good news? Perhaps a few glimmers. Inventories of merchandise for sale (not counting rental product) grew only 2.9%. That's higher than I'd like to see considering the sales trends, but doesn't look bloated. The debt-to-equity ratio is only 13%, and with $86 million of available cash, the company appears to have the financial strength to not be in immediate danger.
The stock has inched up from its low of about $17 in January to around $23 recently. The current price is nearly 60% off its 12-month high, so bottom-fishers may consider taking a gamble here. But that's exactly how I view these shares today ... a gamble.
My advice is to wait at least another quarter. High school graduation is just around the corner -- the biggest season of the year for tuxedo rentals. I'd like to see if the company can build a little traction in the second quarter before dipping my toe into the shares.