Men's Wearhouse: Does The Earnings Miss Provide A Buying Opportunity?

Jun. 7.12 | About: Tailored Brands, (TLRD)

Men's Wearhouse Inc. (MW) saw its shares get hammered in after-hours trading late Wednesday night. Shares dropped over 18% to close at $29.04.

Men's Warehouse reported GAAP diluted earnings per share of $0.52 for its first quarter. Earlier guidance provided by the company called for $0.53 to $0.54 per share. The earnings per share came in flat against last year's first quarter. Total sales increased 1.1% to $586.6 million for the quarter.

Sales by business segment for the first quarter:

Segment Q1 2012 Sales Q1 2011 Sales Increase
Men's Warehouse $371.5 million $354.7 million +4.7%
K&G $103.1 million $106.7 million -3.4%
Moore Canada $55.5 million $53.2 million +4.3%
Corporate Apparel $49.9 million $59.7 million -16.4%
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Men's Warehouse stores that were open more than a year saw same store sales growth of 3.8%. Moore stores open more than a year posted an increase of 7.1%. K&G store sales declined by 4.0% in stores open longer than a year. Corporate apparel saw a big decrease due to a delay in orders being place in the United Kingdom. The corporate apparel includes the Twin Hill brand in the United States and the Dimensions and Alexandra brands in the United Kingdom.

Retail sales from the company's three brands made up 71.68% of first quarter sales. Tuxedo rentals made up 13.38% of the company's sales. Alterations charged to customers were responsible for 6.43% of the company's first quarter sales. Corporate apparel represented 8.5% of the company's net sales.

Total sales increased due to an increase in the average selling price of many items in Men's Warehouse stores. Fewer units were sold in stores during the first quarter. Tuxedo rental services were also stronger for the first quarter, with an increase of 8.1%.

During the first quarter, Men's Warehouse bought back 0.9 million shares for a total of $33.9 million. The company ended the quarter with cash totaling $118.7 million. The company has no long-term debt on its balance sheet.

Men's Warehouse is guiding for $2.70 to $2.78 for earnings per share for the fiscal year. This would be an increase of 13-17% over the previous year. For the second quarter, the company projects $1.12 to $1.13 per share in earnings.

In the first quarter, the company closed 47 Men's Warehouse stores and 2 K&G stores. The company is opening a total of 29 Men's Warehouse stores for the year along with 3 Moores and 1 K&G.

As of 04/28/12 As of 04/30/11
Men's Warehouse 611 587
Men's Warehouse & Tuxedo 336 382
Moores Canada 117 117
K&G 98 101
Total 1162 1187
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Analysts at Yahoo Finance see Men's Warehouse earning $2.80 for the current fiscal year. This estimate is a little higher than the company's full year guidance. Shares took a beating from a first quarter earnings miss and likely a lack of confidence in the company hitting its full year target. Shares now trade with a price to earnings multiple of 10.4-10.8, based on the company's guidance.

For the next fiscal year, analysts are predicting earnings per share of $3.17, which places a forward price to earnings multiple of 9.2. I think shares could easily return to $36 by the end of 2012, giving investors a nice 24% gain with the right buying opportunity.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.