George Zimmer may guarantee you'll like the way you look, but he can't gurantee you'll profit from his stock.

The entrepreneurial chairman and spokesman for

Men's Wearhouse

(MW)

has made peddling men's tailored clothing his mission. Not only does he want you to look good, he wants to help you do it for less.

Through the company's flagship stores and its K&G Men's Centers, Men's Wearhouse sells branded and private label men's clothing at discount prices, typically 20% to 30% below typical department store stickers.

However, clothing is not the only thing selling at a discount at Men's Wearhouse. The stock has traded down nearly 50% from its early 2002 highs as the company stumbled after poor earnings comparisons in the second quarter and margins continue to feel pressure from a more value-oriented strategy.

Discounting the Turnaround

As a retailer, Men's Wearhouse has also felt the recent pressure nearly every retailer has felt -- consumer weakness. As retailers continue to post anemic same-store sales, evidence is mounting that the strength of the consumer is at least moderating.

While value retailers like Men's Wearhouse should be relative beneficiaries of a weaker, and by definition more value-conscious, consumer, the company's strategy of focusing on lower price points has eroded margins.

For example, during September, the company's total transactions were up 11%, but average prices declined by 8%. Those statistics helped persuade management to tweak guidance lower for the balance of 2002.

However, one analyst thinks this strategy will ultimately help the company. "The September comp increase of 2% ... was an indication that incrementally the value strategy is working," UBS Warburg analyst Richard Jaffe wrote in a research note. "Handicapped by a late start to the September ad campaign, momentum built slowly. We are encouraged by the modest success of the value pricing initiative."

Jaffe, who rates the stock a strong buy and whose firm hasn't provided investment banking services for Men's Wearhouse, thinks the company will earn 11 cents a share for the third quarter.

Though he thinks November sales may be weak because of the timing of advertising, he expects December to pick up and begin showing signs that Zimmer's value-based strategy is working. That, in turn, should dress up the stock.

"We estimate that, as a turnaround at Men's Wearhouse becomes visible, the shares will trade up to a modest discount to the market multiple of 13-14 times normalized earnings power, estimated at $1.60," Jaffe wrote in his research note. "This yields our 12-month price target of $21 per share."

Dressed Up With Somewhere to Go

While the company's core clothing business has felt pressure and the verdict is mixed on its move into more casual fare, there are signs of strength from new products.

For example, the company's tuxedo rental business has been spiffy, with revenue exceeding 5% of company totals in the second quarter, compared with just under 2% a year ago. And, given that the program is just now being phased into all stores, the contribution from formal wear will only improve.

The company is also fortifying its private label through the recent acquisition of Wilkes-Rodriguez, a designer label with a quality reputation.

Eddie Rodriguez will serve as creative and design director for the company and should bring a fresh look to an upscale line of men's clothing to the stores. Combined with some fresh looks in store merchandising, the new designs should add additional appeal for consumers.

No Guarantees

There are plenty of uncertainties, but many relate to issues beyond the company's control, namely the economy and the consumer. However, with the value-oriented focus at Men's Warehouse, the company may actually benefit -- at least relative to large department stores -- from consumer moderation.

That might not mean stellar growth in the coming year, but the stock may have factored a large portion of that into the current price. I'm no George Zimmer, and I guarantee nothing, but if you're looking for a retailer in your small-cap portfolio, you may find you like the way Men's Wearhouse looks. I give it two barrels.

Christopher S. Edmonds is vice president and director of research at Pritchard Capital Partners, a New Orleans energy investment firm. He is based in Atlanta. At time of publication, neither Edmonds nor his firm held positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send it to

Chris Edmonds.