NEW YORK (TheStreet) -- Shares of Men's Wearhouse (MW) and Jos. A. Bank Clothiers (JOSB) popped after news that a buyout deal is not off the table. Eminence Capital, Men's Wearhouse's largest shareholder, confirmed the retailer's CEO Doug Ewert has not ruled out a merger with Jos. A. Bank Clothiers.
Sharse of Jos. A. Bank had gained 3.4% to $50.19, while Men's Wearhouse was up 3.4% to $47.52.
Sweetening the deal is the former's better-than-expected earnings guidance released on Tuesday. For the third quarter ended Nov. 2, Jos. A. Bank said it expects profit to fall between 49 cents and 51 cents a share, a 4% to 9% gain on earnings in the year-ago quarter. Analysts surveyed by Thomson Reuters had expected earnings of 43 cents a share, down 10% from the year-earlier quarter.
The men's clothing retailer expects sales growth in the mid-single digits, compared to analysts' projections of 1% growth. The company's resilience makes it an outlier, as the greater retail industry is challenged by soft consumer discretionary spending.
"Our projected performance in the third quarter, which was somewhat affected by the government shutdown, marks a continuation of the positive trends we had seen at the end of the second quarter," said CEO R. Neal Black in a statement. "We are highly focused on continuing to improve our sales trend. We feel confident that the strategies we have in place will enable us to show continued improvement and to further strengthen our brand and best position it for the future."
The Hampstead, Maryland-based business will report third-quarter earnings on Nov. 25. The offer to buy Men's Wearhouse for $48 a share, or $2.3 billion, will expire on Nov. 14.
TheStreet Ratings team rates Jos. A. Bank Clothiers INC as a Buy with a ratings score of B. The team has this to say about their recommendation:
"We rate Jos. A. Bank Clothiers INC (JOSB) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, expanding profit margins and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- JOSB has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, JOSB has a quick ratio of 2.34, which demonstrates the ability of the company to cover short-term liquidity needs.
- The gross profit margin for Jos. A. Bank Clothiers INC is rather high; currently it is at 62.16%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 6.12% trails the industry average.
- The revenue fell significantly faster than the industry average of 20%. Since the same quarter one year prior, revenues fell by 10.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- In its most recent trading session, JOSB has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- Jos. A. Bank Clothiers INC's earnings per share declined by 38.5% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, Jos. A. Bank Clothiers INC reported lower earnings of $2.84 a share vs. $3.50 a share in the prior year. For the next year, the market is expecting a contraction of 8.4% in earnings ($2.60 a share vs. $2.84 a share).
- You can view the full analysis from the report here: JOSB Ratings Report