1 Apparel Stock to be Strictly Avoided

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There seems to be no hope for this retailer. The Men’s Wearhouse (NYSE: MW) posted a lackluster quarter recently. The stock jumped nearly 20% on Thursday on the word that it has engaged Jefferies & Co. to evaluate strategic alternatives for one of its chains. The losses of the company narrowed down, and revenue improved. However, the results did not meet Wall Street expectations.

Taking a deeper look

The retailer posted a fourth quarter loss of $3.4 million, a little less than the loss of $3.8 million in the same period last year. Net sales jumped 8.2% to $608.4 million. The only business unit with negative sales was K&G stores. Same-store sales for K&G were 5.7% lower. The 97 K&G stores account for about 13% of total sales. It is for the same reason that the company has engaged Jefferies to determine what should be done with K&G’s going forward.

The shares surged sharply after the announcement. But was that the right reaction? With declining sales, no company would be interested in buying the business. Even if anyone is willing, will they get the right price?

Furthermore, the company announced John Kimmins as the new CFO. He has his hands full, as the company is amending its current credit facility to a borrowing capacity of $300 million. The company is also adding a $100 million term loan payable quarterly over five years at 10%. This is not the end; the company also added $155 million to its share repurchase authorization. Well, the company is into both organizational and financial restructuring. It may take a while for the plans to work.

On similar lanes...

Aeropostale (NYSE: ARO) posted a fourth-quarter loss, as the apparel retailer recorded weak sales during the holiday season. The company isn’t expecting much out of the current quarter, blaming the tough economic conditions. The company posted a loss of $0.01 per share. Moreover, Aeropostale’s stock price has fallen nearly 30% in the last 12 months.

On the other hand, sports apparel retailer Zumiez (NASDAQ: ZUMZ) reported $0.75 earnings per share for the fourth quarter. The company’s revenue for the quarter was up 22%. But the board doesn’t see a bright picture for the coming quarter. The company expects a profit of $0.04 to $0.07 compared to $0.14 last year. The decrease is because of price adjustments after acquiring Blue Tomato, and also because of expectation of low demand.

The takeaway

Men’s Wearhouse isn’t going through the best of times. With financial and organizational changes taking place, the company needs a little bit of time to move forward. As of now even Aeropostale and Zumiez aren’t having great times. But still, if one has to choose, Zumiez is a better pick and for Men’s Wearhouse, one should be on the sidelines and wait for the right opportunity.


Pratik Thacker has no position in any stocks mentioned. The Motley Fool owns shares of Aeropostale. 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!

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