The Men's Wearhouse Plummets on Weak Guidance

Dec.12.10 | About: Tailored Brands, (TLRD)

By Damien Hoffman

The Men’s Wearhouse, Inc. (NYSE: MW) is a specialty retailer of men’s suits and a provider of tuxedo rental products in the United States and Canada. As of January 30, 2010, MW operated 1,259 retail stores, with 1,142 stores in the United States and 117 in Canada. MW sports a $1.3 billion market cap and a 1.45% dividend.

Earnings: 3Q profit excluding non-recurring items of $25.3 million ($0.57/share) vs. 3Q09 profit of $19.3 million ($0.36/share).

Revenue: Up 19% YoY to $550.1 million.

Actual vs. Wall St. Expectations: MW beat the Street in terms of both EPS and revenue, as analysts had forecasted 3Q EPS of $0.47 on $521.4 million in revenue.

Notable Stats: MW predicted a 4Q EPS loss, excluding one-time charges, of $0.19-$0.22. Analysts were expecting the company to forecast a loss of just $0.05/share.

4Q sales growth is expected to fall somewhere in the high teens to low twenties. Same-store sales at MW’s namesake locations rose 9.6% YoY. Total inventory increased 6.9% to $509.4 million. Gross margin declined to 42.7% from 43.7%.

Did You Hear That? S&P maintained a Hold rating on shares of MW, noting that “gross margin expansion and lower occupancy cost[s] were mitigated by a 42 bps increase in the SG&A expense ratio, however, EBIT margin expanded 85 bps to 8.0% and MW benefitted from a reduced effective tax rate (down 880 bps to 25.7%).”

Technicals: Shares of MW went on a tear beginning in late-August, rising from $18 to $29 nearly unabated. However, the rise came to a screeching halt following last week’s earnings release, reversing and dropping almost 20%. The good news, if we must find some, is that shares held their 200-day moving average and have bounced a decent amount since the initial collapse. Still, huge volume on the selloff indicates heavy institutional selling.

Commentary: Hopefully those of you who rode MW through the fall booked some profits pre-announcement, as shares lost as much as 20% of their value in the 24 hours following the company’s earnings release. Having offered weak 4Q guidance, it’s unlikely that shares will find much in the form of a catalyst to the upside before next Q’s numbers are released.

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Disclosure: No holdings in MW.