Men's Wearhouse Q2 Earnings Beat, Sales Rise, Stock Up 2.2%

Shares of The Men's Wearhouse Inc. MW climbed 2.2% during the after-market trading session yesterday, as its second-quarter fiscal 2014 adjusted earnings of $1.10 not only surged 8.9% year over year, but also beat the Zacks Consensus Estimate of $1.06 a share.

The rise in earnings was backed by robust performances at the company's Moores, Men's Wearhouse and K&G brands, coupled with strength noticed in the tuxedo rental business.

However, including one-time items, GAAP earnings for the reported quarter came in at 25 cents per share, down from 85 cents recorded last year on account of acquisition and integration expenses.

Total net sales during the quarter advanced 24.1% year over year to $803.1 million. However, sales fell short of the Zacks Consensus Estimate of $933.0 million. The year-over-year rise was primarily driven by a 5.6% improvement in sales at the company's flagship brand.

Comparable-store sales improved 4.4% in the quarter.

Glimpse of First Half Fiscal 2014

For the six months ended Aug 2, 2014, the company's adjusted earnings per share came in at $1.78 per share, compared to $1.66 recorded in the same period last year. Net sales during the first half of the year rose 13.4% to $1,433.6 million.

Segment Performance

The Retail segment's total revenue increased 24.1% year over year to $736.4 million, largely driven by solid sales at Jos. A. Bank, whose acquisition by Men's Wearhouse closed on Jun 18, 2014. Also, retail segment sales were augmented by rising comps at the other retail brands of the company.

The Corporate Apparel segment's revenues escalated 23.9% to $66.7 million.

Adjusted gross profit soared 18.3% to $365.3 million, while gross profit margin contracted 220 basis points year over year to 45.5%, attributable to weak retail margin on account of the new Jos. A. Bank acquisition.

Further, adjusted selling, general and administrative (SG&A) expenses increased 18.5% to $272 million, owing to rising advertisement costs and acquisition expenses.

The increased gross profit led adjusted operating income to jump 17.8% year over year to $93.3 million.

Other Financial Aspects

Men's Wearhouse ended the quarter with cash and cash equivalents of $67.2 million, long-term debt of $1,678.2 million and shareholders' equity of $1,037.6 million, excluding non-controlling interest of $14.4 million. The debt is mainly associated with the latest acquisition made by the company.

Additionally, the company announced a quarterly cash dividend of 18 cents a share payable on Dec 26, 2014, to stockholders of record as on Dec 16.

Merger Update

After several attempts, Men's Wearhouse finally completed the acquisition of Jos. A Bank on Jun 18. As declared earlier, Java Corp – a wholly owned subsidiary of Men's Wearhouse acquired all shares of Jos. A. Bank in an all-cash transaction at $65.00 per share.

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 26,000 people over 1,700 stores in the U.S.

The merger, which combined the complementary businesses of companies, enhanced scale and breadth that will cater to a wider customer base and drive the company's long-term goals. Though still in the nascent stages of integration, Men's Wearhouse expects the merger to propel earnings in its first full year of operation and also generate synergies of nearly $100–$150 million by the end of fiscal 2016.

Currently, Men's Wearhouse has a Zacks Rank #4 (Sell). Some better-ranked stocks in the same industry include Citi Trends, Inc. CTRN, with a Zacks Rank #1 (Strong Buy), along with Foot Locker, Inc. FL and Express Inc. EXPR, with a Zacks Rank #2 (Buy).
 

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