Sales and earnings continue to slide at Men's Wearhouse (NYSE:MW), as little changed from when we last checked in on this natty attire retailer back in March. Seems like the company hasn't been able to catch a break since the economy turned south last year.
Last fall, it seemed the biggest problem was integrating the acquired After Hours tuxedo rental operation from Macy's (NYSE:M). But after two consecutive quarters of large sales declines, this is looking like a washout.
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 (NYSE:KSS) and J.C. Penney (NYSE:JCP) are finding, when sales turn south in a big way, it's nearly impossible to cut expenses to keep pace.
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.
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