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MW Beats on EPS, Ups FY12 Outlook

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The Men's Wearhouse Inc , one of the largest specialty retailers of menswear in the United States and Canada, recently reported second-quarter 2012 earnings of $1.15 per share, beating the Zacks Consensus Estimate of $1.12 per share. Results also came above the company’s guidance range of $1.12 - $1.13 and increased 3.6% year-over-year from the year-ago adjusted profit of $1.11 per share, driven by increased gross margin in retail segment and lower tax rate.

Quarter in Details

Revenue for the second quarter crept up 1% year over year to $662.3 million from $655.5 million in the prior-year quarter. However, it marginally missed the Zacks Revenue Estimate of $663 million.

Gross profit, in dollar terms, increased 3.6% to $320.3 million from $309.2 million in the year-ago quarter primarily due to lower cost of goods sold as a percentage of sales. Consequently, gross profit margin expanded 120 basis points year over year to 48.4% from 47.2% reported in the year-ago quarter.

Increased merchandise gross profit led to a 2.9% increase in operating income to $91.6 million from the prior-year level of $89.0 million. Consequently, operating margin for the quarter expanded 20 basis points to 13.8%.

At the end of the quarter, the company had 1,153 stores with 7,023.7 sq ft area compared with 1,178 stores in the prior-year quarter.

Segment Performance

Retail Segment: Total revenue of this segment came in at $604.7 million compared to $586.0 million in the prior-year quarter. This segment is further sub-divided into the following divisions:

Retail Clothing Product division represented 62.4% of total sales of the company and increased 2.8% year over year to $413.0 million in terms of revenue, reflecting 4.4% rise in Men’s Wearhouse brand and a 2.5% rise in Moores brand, partially offset by a decline of 3.3% in K&G Brand.

Tuxedo Rental Services division represented 23.3% of the total company’s sales and posted a rise of 4% in revenue at $154.1 million, reflecting robust comps rise of 4.3%, attributable to higher unit rentals and unit rental rates along with rise in sales of tuxedo accessories.

Alteration and other services division represents only 5.7% of the total company’s sales and increased 4.3% year over year to $37.5 million compared with $36.0 million in the prior-year quarter.

Gross Profit for the Retail Segment, in dollar terms, increased 3.7% year over year to $301.9 million from $291.2 million, consequently gross margin expanded 20 basis points to 49.9% from 49.7% in the prior-year quarter.

Corporate Apparel Segment: This segment represents 8.7% of the total company’s sales. Total revenue at this segment decreased 17.1% to $57.6 million compared with $69.5 million in the last-year quarter. However, gross profit in dollar terms, inched up 1.6% to $18.4 million and gross margin expanded 590 basis points to 31.9% from 26.0% in the prior-year quarter.

Other Financial Aspects

As on July 28, 2012, Men’s Wearhouse has a debt-free balance sheet with cash and cash equivalents of $106.4 million, compared with $162.3 million a year ago. Shareholders’ equity was $1,067.6 million compared with $1,027.7 million. Capital expenditure during the first six months of 2012 was $68.8 million.

Strolling through Guidance

Men’s Wearhouse raised its guidance for fiscal 2012. The company now expects GAAP earnings per share in the range of $2.74 - $$2.80 per share, reflecting an increase from its prior guidance range of $2.70 - $2.78 per share. Total net revenue is anticipated to increase in the range of 4.8% - 5.6%, raised from its prior guidance range of 4% - 5%.

The company provided guidance for third and fourth quarter of 2012 as well. The GAAP earnings per share for the third and fourth quarter of 2012 are forecasted to be in the range of 95 - 98 cents and 12 - 15 cents, respectively. Sales for the third and fourth quarter 2012 are expected to increase within 8.8% - 9.3% and 11.3% - 11.8% range, respectively.

Our Recommendation

Men's Wearhouse, which competes with the likes of Collective Brands Inc. , currently retains a Zacks #3 Rank that translates into a short-term Hold rating.

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