The Men’s Wearhouse, Inc. (MW): Weak Outlook

Corporate Apparel accounts for 10% of FY12 sales and posted a growth of 22% in FY12. It has finally seen profitability in FY12. Pairing up American based Twin Hills with the addition of British Dimensions and Alexandria, it continues to grow its secondary segment.

International expansion

The company has moved into the corporate apparel segment in UK and Canada through its Moores line of stores. It does not have a specific plan for international growth but continues to focus on the regions as it provides opportunity for future growth.

Guidance

It guided for FY2013 EPS in the range of $2.70 to $2.80 per share (representing an improvement of 5.9% to 9.8%), and sales growth of 2.85% and 3.85%. Analyst expectations were $2.77.

Competitors

The Men’s Wearhouse, Inc. (NYSE:MW) faces stiff competition from various private firms like Burlington Northern Coats, BrooksBrothers, and many old-fashioned mom and pop style stores. Its most direct public competition comes from Jos. A. Banks. Without international exposure, it is like a mini Men’s Wearhouse. It continues to build its presence in the US, attempting to steal Men’s Wearhouse’s market share. However, the company lowered its FY12 guidance and posted a days inventory ratio of 308 and an inventory turnover ratio of 1.18. This shows that the company has a long way to reach Men’s Wearhouse’s metrics.

On the other hand, it has a strong contender in Macy’s (NYSE:M).  It reported strong 4Q12 results, increasing sales by 7.2% with SSS growth of 3.9%. It had a strong 2012 as a result of successful execution of its strategies and a 48% surge in its online sales. It also guided for a strong FY13 with EPS of $3.90 to $3.95 and SSS of 3.5% (vs. analyst expectations of $3.85).

Conclusion

Based on the above comparison with Jos. A. Banks, The Men’s Wearhouse, Inc. (NYSE:MW) is better given its strong balance sheet and dividend yield. Further, there is no doubt that Macy’s is a much better and stable stock than Men’s Wearhouse and given Men’s Wearhouse’s recent rally in share price, it has become more expensive than Macy’s (Men’s Wearhouse PE 13.63 and Macy’s 12.86) .

Given its recent performance and lackluster outlook for growth, I would remain on the sideline. If you want to invest in a clothing retailer, there are better stocks in the basket.

The article Men’s Wearhouse : Weak Outlook originally appeared on Fool.com and is written by Sujata Dutta.

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