Men's Wearhouse Q1 Earnings and Revs Beat - Analyst Blog

Shares of The Men's Wearhouse Inc. MW nudged up about 0.3% during the after-market trading session yesterday, as its first-quarter fiscal 2014 adjusted earnings of 69 cents jumped 6.2% year over year. Moreover, despite the unfavorable Easter shift, the company beat the Zacks Consensus Estimate by 3 cents.

Including one-time items, GAAP earnings for the reported quarter came in at 34 cents per share.

Total net sales during the quarter climbed 2.3% year over year to $630.5 million and surpassed the Zacks Consensus Estimate of $628.0 million. The year-over-year rise was primarily driven by a 4.8% improvement in sales at the company's flagship brand.

Comparable-store sales improved 2.9% in the quarter.

Segment Performance

The Retail segment's total revenue increased 2.4% year over year to $573.6 million. The rise was due to a 2.2% revenue improvement in retail clothing product to $433.0 million, a 3.2% revenue increase in tuxedo rental services to $101.7 million and alteration and other services division's sales advancing 2.6% to $39.0 million.

The Corporate Apparel segment's revenues inched up 0.8% to $56.8 million.

Gross profit picked up nearly 2% to $283.4 million, while gross profit margin contracted 20 basis points year over year to 44.9%. The fall in gross margin was accountable to excessive promotional events, coupled with a hike in royalty expenses, which weighed on the gross margin of tuxedo rental services.

Further, adjusted selling, general and administrative (SG&A) expenses increased 1.9% to $229.6 million, owing to rising advertisement costs.

Other Financial Aspects

Men's Wearhouse ended the quarter with cash and cash equivalents of $95.9 million, long-term debt of $85.0 million and shareholders' equity of $1,028.4 million, excluding non-controlling interest of $14.4 million.

Merger Update

Recently, Men's Wearhouse sealed a merger deal with men's apparel retailer Jos. A. Bank Clothiers Inc. JOSB. Per the deal, Men's Wearhouse will acquire all shares of Jos. A. Bank in an all-cash transaction of $1.8 billion or $65.00 per share.

While Jos. A. Bank's shareholders will benefit from the value quotient, Men's Wearhouse shareholders will gain from estimated annual synergies of $100–$150 million over the next three years arising from the merger of the companies. Moreover, the transaction is projected to be accretive to Men's Wearhouse's earnings in the first full year of its operation.

The combination of the two companies is expected to create a men's apparel retailer behemoth with pro-forma sales of $3.5 billion, employing about 23,000 people over 1,700 stores in the U.S. The merger will combine the complementary businesses of both companies, creating the fourth largest men's apparel company in the country with increased scale and breadth that will cater to a wider customer base and drive the company's long-term goals.

Per the press release on May 30, 2014, the merger transaction is anticipated to close within a month, as the waiting phase was terminated by the Federal Trade Commission, abiding by the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

Currently, Men's Wearhouse has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry include American Apparel, Inc. APP and Foot Locker, Inc. FL. Both American Apparel and Foot Locker carry a Zacks Rank #2 (Buy).