This Apparel Stock Fits All Genders
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For years Men’s Wearhouse (NYSE: MW) has been offering reasonably priced suits and guaranteeing your personal opinion. Founded in Houston in 1973 by former CEO George Zimmer, the company offers dress clothes, sportswear, outerwear and professional clothes for men, women, and children. The company owns and operates 1,143 stores that include Men’s Wearhouse, Tux, K&G, and Moores Clothing. The company is an established brand, but with the recent separation from its founder, can you still trust the Men’s Wearhouse guarantee?
George Zimmer started Men’s Wearhouse and poured himself into turning it into a successful business. Like many founders, Zimmer found it hard to relinquish control of his publicly owned company. He wanted veto power over major corporate decisions including executive compensation and would not accept anything less than total control of the company. He butted heads with current CEO Doug Ewert and many key management team members over strategic plans involving K&G. K&G is the company’s weakest brand which experienced a 5.3% decline in same store sales last quarter. According to the board, Zimmer effectively left them with the option of supporting the current management or giving control back to the founder. They chose the former.
Zimmer was a good spokesman and has had tremendous success with Men’s Wearhouse. He promoted hiring diverse employees despite having a mostly male customer base, and was the voice behind the famous tagline, “You’re going to like the way you look. I guarantee it.” Zimmer operated the company to benefit five groups that he listed from most important to least important. This list was employees, customers, shareholders, vendors and communities. The fact that Zimmer ranked shareholders as the third most important group of stakeholders is a red flag. Shareholders are the people that put their money and trust into a company and make it possible to grow. They should be number 1. The other 4 stakeholders are essential to creating a successful business, but it’s important to adequately value the shareholders.
With Zimmer gone, the company will be able to operate with less management discourse and can make more decisions with investors in mind. Even so, I’m really going to miss those commercials.
The Wearhouse's foundation
Looking at the company without Zimmer, Men’s Wearhouse has plans for future growth and has experienced recent success. This past quarter the company saw a $0.13 improvement in earnings per share which represented a 23.1% earnings growth. This positive report has been attributed to a calendar shift that extended the company’s prom season from 3 weeks to 5 weeks. This shift allowed for a 25% increase in tuxedo rentals which accounted for $0.10 of the EPS growth.
Men’s Wearhouse recently launched a new e-commerce site as a step towards providing customers with a compelling omnichannel shopping experience. The site includes expert advice from Joseph Abboud, wardrobe suggestions, intuitive navigation. The company is also testing mobile technology in an effort to improve the customers shopping experience.
Looking towards the future, Men’s Wearhouse plans to continue growth through 5 initiatives. First, the company plans to open 100 new stores, 30 of which will be finished in 2013. Second, the company will increase margins by designing and sourcing more exclusive clothing lines. Third, the company will target marketing and products to millennials. The company will develop more trendy products designed to catch the eye of the younger generation. Fourth, the company will expand its Perfect Fit loyalty program by utilizing purchasing history to help customize a personal and in store and online shopping experience. Finally, the company is developing specialty stores that will provide underserved customers with more attention. With these growth ideas and the company’s current success, Men’s Wearhouse expects its earnings per share to be between $2.70 and $2.80 by the end of 2013.
Breaking the Bank
Men’s Wearhouse’s main competitor is Jos. A Bank Clothiers (NASDAQ: JOSB). This company was founded in 1905, operates 603 Jos. A. Bank stores in 44 states, and sells the same products as Men’s Wearhouse. Jos. A. Bank had a rough first quarter of 2013 as it saw a 45% decrease in net income from $14.8 million to $8.1 million and a 2.6% drop in sales. The disappointing earnings were a result of a 270 basis point drop in the company’s gross margin that stemmed from increased sourcing prices.
Jos. A. Bank has been using promotional activity to drive sales since the economic crisis in 2008. The strategy was designed to support the company during times of economic turmoil and has been growing weaker over the past few quarters. The company hopes to turn things around through its e-commerce site. An evolving internet presence can improve conversion rates and drive customer traffic.
Overall, Men’s Wearhouse has performed better than Jos. A. Bank under the same economic conditions and I think it will continue this performance in the future. Men’s Wearhouse is also cheaper than Jos. A. Bank with a P/E ratio of 13.74 compared to Bank’s 15.54.
While I will miss Zimmer’s deep-voiced commercials, I think that separating the controlling founder from the company’s management was a good decision by the board. Men’s Wearhouse will be able to continue its planned expansion and make good choices with shareholders in mind. This combined with the company’s e-commerce and mobile growth should mean good things for its future. Unlike men’s apparel, there are no guarantees for stocks. But if you put this stock in your portfolio, I believe you’re going to like the way it looks.
Ben Popkin has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!