Some companies just don't get no respect. Especially when they're in what most of us would describe as a relatively boring market segment like men's suits. And when they deliver boring, consistent earnings? Yawn.
Enter Men's Wearhouse
Men's Wearhouse reported first-quarter earnings on Thursday that should make investors wake up and take notice. Total sales grew by 14%, with domestic same-store sales up nearly 11%. Net earnings hopped forward a tidy 50%. Earnings per share of $0.61 grew by a similar percentage, beating analyst estimates of $0.54.
Gross margins improved by over 200 basis points. Drivers were improved mix, markdown savings, and lower product costs from direct-sourcing initiatives. Operating income improved to 8.9% of sales, not as high as you find at some other apparel retailers like Kohl's
And is it really fair to compare Men's Wearhouse to most other rag merchants? The company occupies and dominates its own niche, men's tailored apparel. The only other public company I know that concentrates on this space is Jos. A Bank Clothiers
The company also announced a 3-for-2 stock split and an increase to its share repurchase program. Although free cash flow remains tame, the company has inventories under control (only an 8% increase on 14% higher sales), a solid cash position, and debt to capitalization of less than 20%.
To spur growth, the company has been moving into new segments. A few years ago it began renting tuxedos, and more recently it has been moving into dry cleaning and corporate uniforms. While these segments continue the tradition of boring business avenues, they provide excellent synergies. All three are large markets with no strong competitors, and they serve additional needs of the existing customer base. Look for the company to make solid profits as it moves to a dominant position in these businesses.
The company has had a solid run for the past few years, so the stock is not cheap at a trailing 12-month P/E of close to 19. But I like it because of the dominant niche position and the growth prospects. If you need any more reasons to like the company, consider that for five of the last six years, it has made Fortune's list of the 100 best companies to work for. Not only profitable and growing, but fun as well. Who said that making money had to be sexy?
For more exciting news in the apparel business check out:
- Heads turning at Abercrombie & Fitch.
- A fashion faux pas at Limited.
- Exploring new segments at The Gap.