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Men's Warehouse Downgraded to Strong Sell

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Zacks Investment Research downgraded Men’s Warehouse Inc to a Zacks Rank #5 (Strong Sell) on Sep 21. Disappointing second quarter fiscal 2013 results and a tempered fiscal guidance led to the downgrade.

Why the Downgrade?

On Sep 11, Men’s Warehouse reported dismal second quarter (ending Aug 3, 2013) results owing to a sluggish retail environment. Earnings of $1.01 per share missed both the Zacks Consensus Estimate and the prior-year quarter’s earnings of $1.15 by 12.2%.

The company’s top line decreased 2.3% year over year to $647.3 million and missed the Zacks Consensus Estimate of $675 million. The downside was due to a decline in retail clothing sales owing to lower consumer traffic. It has been seen that apparel retailers are facing a tough time as shift in consumer shopping preferences toward big-ticket items are hurting apparel and accessories sales.

The company also stated that the shift in tuxedo revenues and the deleveraging of occupancy costs dented margins during the quarter. Consolidated gross profit decreased 3.6% to $308.8 million, while gross profit margin contracted 65 basis points year over year to 47.7% in the second quarter of 2013. Operating income plunged 27.1% to $66.8 million, while operating margin contracted 351 basis points to 10.3%.

Following soft second quarter results and lingering macro concerns, Men’s Wearhouse lowered its fiscal 2013 earnings guidance. The company now expects earnings per share to be in the range of $2.40–$2.50 for fiscal 2013, down from its earlier guidance range of $2.70–$2.80. The company also lowered its comps guidance by 2% at Men's Wearhouse and Moores.

Following the disappointing second quarter results, shares of this specialty retailer of menswear in the United States and Canada, plunged around 14% in aftermarket trading.

This specialty retailer witnessed sharp downward estimate revisions after announcing its second quarter fiscal 2013 results. All the estimates for the third quarter and fiscal 2013 declined over the past 30 days. The Zacks Consensus Estimate for the third quarter decreased 12.0% while that for fiscal 2013 went down 11.9% over the last 30 days.

Other Stocks to Consider

Not all stocks are performing as poorly as Men’s Warehouse. Retailers worth considering include Christopher & Banks Corp (CBK - Free Report) , Citi Trends Inc. and Destination Maternity Corp . While Christopher and Citi Trends hold a Zacks Rank #1 (Strong Buy), Destination Maternity holds a Zacks Rank #2 (Buy).

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