In its latest fiscal year, The Men’s Wearhouse, Inc. (NYSE:MW) reported slight growth, with increases in revenue and operating income of 4.4% and 7.1%, respectively, versus the prior year. While comparable-stores sales were strong at its namesake stores, up 4.8% for the period, the company’s overall growth was hurt by store closures and flat results in its corporate apparel segment. However, The Men’s Wearhouse, Inc. (NYSE:MW)’s drive for efficiency led to the highest operating margin of the past five years, which has generated strong operating cash flow and has provided funds for further expansion of its retail store network.
Hitting the ceiling
With Jos. A. Bank approaching its target market capacity of 800 domestic stores, though, it is going to need to think outside the box, rather than to just emulate its largest competitor. Clothing designer Oxford Industries, Inc. (NYSE:OXM) made that decision years ago when it started to de-emphasize its historical roots in the men’s tailored clothing segment in favor of a focus on casual brands. Through the acquisition channel, the company purchased niche lifestyle brands like Tommy Bahama, Lillly Pulitzer, and Ben Sherman, which now account for roughly 85% of its overall sales.
In its latest fiscal year, Oxford Industries, Inc. (NYSE:OXM) reported a solid gain in its financial results, with increases in revenue and adjusted operating income of 12.7% and 8.3%, respectively, compared to the prior year. Oxford Industries’ gross margin hit a five-year high as it enjoyed strong pricing for its upscale product lines and it continued to expand its retail store network, especially for its leading Tommy Bahama brand. While the company’s operating margin was affected by its aggressive expansion plans, including adding administrative and marketing personnel in Asian growth markets, it is building brands that can be leveraged into high-margin licensing areas, hopefully providing a boost to its profitability over the long term.
The bottom line
Jos. A. Bank and Men’s Wearhouse are carving up a profitable niche, but growth in the upscale menswear arena is likely to remain moribund, unless consumers’ preferences do an abrupt about-face. Jos. A. Bank likely needs to pursue acquisition opportunities in the casual brand area, a la Oxford Industries, if it wants to reinvigorate its growth trajectory. Until the company makes a value-enhancing move with its cash hoard, investors should take a wait-and-see approach to this retailer.
The article Does This Clothing Designer Have a Second Act? originally appeared on Fool.com and is written by Robert Hanley.
Fool contributor Robert Hanley owns shares of Oxford Industries. The Motley Fool has no position in any of the stocks mentioned.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
