When fellow Fool Seth Jayson last checked in on Men's Wearhouse (NYSE:MW) back in February, he found the company to be "boringly solid." Well, judging from the company's six-month results, released last week, "boringly solid" seems to suit a company that specializes in conservative business attire just fine. Here are the numbers:
Sales for the first six months of 2004 increased 12.6% over the year-ago period; comparable store sales increased 9.4%; and diluted profits per share were up an astounding 62.5% to $0.91.
The ability to increase sales only modestly, yet translate that into a profits increase many times the size of the sales increase, derives from the razor-thin margins common in the retail industry. When a retailer such as Men's Wearhouse is able to keep its costs under control and eke out even a modest increase in its gross, operating, and net margins, profits can jump impressively (as we saw last week, when looking at the results posted by warehouse store owner BJ's (NYSE:BJ)).
That is what happened at Men's Wearhouse. The company boosted its profit margin by just over 1%. But an increase of that size, which would constitute a rounding error in a company as profitable as, say, Qualcomm (NASDAQ:QCOM) or Cisco (NASDAQ:CSCO), translates into a profitability increase of almost one-third when implemented at a company with the 3.47% profit margins that Men's Wearhouse was working with last year.
It also did not hurt that over the past year, Men's Wearhouse has bought back 8.8% of its shares outstanding. Rather than issue shares with abandon, then try to buy them back to hide the dilution -- a tactic we have written about over the past few months in regard to, for example, Symantec (NASDAQ:SYMC) and DoubleClick (NASDAQ:DCLK) (you can read those stories by clicking here and here) -- Men's Wearhouse mostly just buys up old shares without issuing new. That's the kind of shareholder-friendly action we really like to see here at the Fool.
So to sum up, Men's Wearhouse turned in a fine quarter and a fine first half. That may be boring, but I don't expect to hear much complaining from its shareholders.
On a related note, tune in in two weeks to see how well rival clothier Jos. A. Bank (NASDAQ:JOSB) answers Men's Wearhouse's results. Jos. A. Bank is set to release its numbers before the bell on Sept. 9.
Fool contributor Rich Smith owns no shares in any company mentioned in this article.
