Why Men's Wearhouse (MW) Stock Is Surging This Morning

NEW YORK (TheStreet) -- Shares of The Men's Wearhouse, Inc.  (MW) are up 5.78% to $54.32 after reporting fiscal 2014 first quarter results.

Total net sales for the quarter increased 2.3% or $13.9 million to $630.5 million from $616.5 million.

Retail segment sales for the quarter increased by 2.4% or $13.5 million and corporate apparel sales increased by 0.8% or $0.5 million as compared to the prior year quarter.

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GAAP net earnings were $16.5 million. Adjusted net earnings for the quarter were $33.1 million, or 69 cents adjusted earnings per share, compared to net earnings of $33.1 million, or 65 cents diluted earnings per share last year, and beating analysts' consensus estimate of 67 cents.

Separately, the company announced that it plans to issue an aggregate principal amount of up to $600 million of senior notes due 2022 in a private offering.

The company intends to use the net proceeds from the offering to pay a portion of the approximately $1.8 billion purchase price for the previously announced acquisition of Jos. A. Bank Clothiers, Inc. (JOSB).

TheStreet Ratings team rates MENS WEARHOUSE INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate MENS WEARHOUSE INC (MW) a BUY. This is driven by several positive factors, 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 solid stock price performance, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to its closing price of one year ago, MW's share price has jumped by 37.49%, exceeding the performance of the broader market during that same time frame. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • MW's debt-to-equity ratio is very low at 0.10 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.42 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • MENS WEARHOUSE INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, MENS WEARHOUSE INC reported lower earnings of $1.65 versus $2.55 in the prior year. This year, the market expects an improvement in earnings ($2.62 versus $1.65).
  • 41.36% is the gross profit margin for MENS WEARHOUSE INC which we consider to be strong. Regardless of MW's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MW's net profit margin of -5.43% significantly underperformed when compared to the industry average.
  • MW, with its decline in revenue, slightly underperformed the industry average of 3.6%. Since the same quarter one year prior, revenues slightly dropped by 7.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • You can view the full analysis from the report here: MW Ratings Report

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Total net sales for the fiscal 2014 first quarter increased 2.3% or $13.9 million to $630.5 million from $616.5 million.  Retail segment sales for the quarter increased by 2.4% or $13.5 million and corporate apparel sales increased by 0.8% or $0.5 million as compared to the prior year quarter.

The consolidated total gross margin was up $5.4 million or 2.0% to the prior year quarter.  The total gross margin rate decreased 13 basis points primarily due to promotional events and a decrease in the tuxedo rental services gross margin rate as a result of increased royalty expenses.  The retail segment total gross margin was up 2.2% and the corporate apparel gross margin decreased 1.9%.

GAAP SG&A expenses were $256.1 million.  Adjusted SG&A expenses of $229.6 million increased by $4.3 million from the prior year or 1.9% primarily due to an increase in advertising expense.  Adjusted SG&A expenses exclude $26.5 million in costs related to various strategic projects, primarily Jos. A. Bank and cost reduction initiatives.

GAAP net earnings were $16.5 million.  Adjusted net earnings for the fiscal 2014 first quarter were $33.1 million, or $0.69 adjusted earnings per share compared to net earnings of $33.1 million, or $0.65 diluted earnings per share last year.

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