Is The Men’s Wearhouse, Inc. (MW) the Next J.C. Penney (JCP)?

Apparently, one of the reasons for the firing was because George Zimmer felt the company was heading in the wrong direction. If rumors are correct, then this partially related to the company’s target market. Current CEO Doug Ewert wants to target a younger audience. While this might seem like a logical move, risks exist. If Men’s Wearhouse loses its current market, it will be difficult to recapture that market. Also keep in mind that this approach failed for former J.C. Penney Company, Inc. (NYSE:JCP) CEO Ron Johnson.

Another interesting aspect of this story is that the public doesn’t know for sure what actually happened yesterday. Considering someone had to know the reason for George Zimmer’s firing, this was unfair to the retail investor. As several media commentators stated, the stock should have been halted until more information was revealed. Below is a chart for Men’s Wearhouse on the day the news broke, June 19, 2013:

MW data by YCharts

The above chart might seem confusing because it looks like the stock appreciated for the day, but the previous close was $37.47.

It’s interesting that the stock only dropped 1.15% on a day when the S&P 500 plummeted 1.39%. That’s actually pretty good. Bargain buyers came in and drove the stock price up from its early morning lows, but was this a wise move?

Conclusion

Men’s Wearhouse had been performing well for several years. Management probably didn’t realize how much negative attention this story would receive. Now Men’s Wearhouse has put itself in a precarious situation. The fundamentals might look good, but those fundamentals could suffer now that the company is receiving negative publicity. Losing George Zimmer as the face of the company will also hurt. Zimmer’s catchy slogan, “You’re going to like the way you look, I guarantee it,” held power and attracted people to the store.

Despite bargain buyers moving in, downside risks outweigh upside potential.

The article Is Men’s Wearhouse the Next J.C. Penney? originally appeared on Fool.com.

Dan Moskowitz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Dan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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