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The Men’s Wearhouse, Inc. (MW) is Dressed For Success

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One of the simplest ways to get an overview of a company’s operations is through a SWOT analysis.  Here, the main strengths, weaknesses, opportunities, and threats of the company are laid out for all to see. The Men’s Wearhouse, Inc. (NYSE:MW) has faced a 25% drop in its share price due to a trio of guidance cuts, a downgrade from Cowen, and the impact of its most direct competitor, Jos. A. Bank (NASDAQ:JOSB) Clothiers.  Posting short-notice guidance of a 20% decrease in 2012 profits, Jos. A. Bank was slammed with a 17% drop in share price.

With The Men’s Wearhouse, Inc. (NYSE:MW) also expecting a 20% plunge in yearly profits, I have decided to take an inside look at the company’s operations to see if its current price offers a long-term investment opportunity for Fools everywhere.

The Men's Wearhouse, Inc. (NYSE:MW)Strengths

Men’s Wearhouse and Tux stores- Making up 20% of the company’s sales, tuxedo rental services has become one of Men’s Wearhouse’s most profitable operations.  Commanding an 86.8% gross margin, the tux rental business is more that 40% higher than the company’s overall gross margin.

Strong Financials- Holding $138 million cash on hand versus no debt, while generating a positive free cash flow every year for the last decade, Men’s Wearhouse is built upon a solid foundation.  Growing its Book Value per share 10% yearly for the last decade, the company has lowered its P/B to only 1.3.

Slow and Steady Wins the Race- Growth has not been impressive, but it has been very steady, with EPS improving 14% yearly over the last 10 years and 18% since 2008.  As for revenue, the company has seen an 8% yearly climb over the last decade, and a 4% bump up per year in the last 5 years.

Great Work Environment- Coming in 50th out of the Forbes100 Best Companies to Work For, Men’s Wearhouse shows that it truly cares about its employees.  With compensation and benefits well above the norm for retail, the company has attracted top talent and spurred cost savings initiatives throughout its company.  As the Motley Fool’s own Jeremy Bowman explains, looking for happy employees can be a huge help when try to find successful stocks.


Slowing Growth Runways- Aiming for a target of 125 Moores stores in Canada, the company doesn’t have much room for growth as they currently have 117 now.  Furthermore, the company has 625 Men’s Wearhouse stores and sees the overall count in America growing to 750 in the intermediate future.  While that represents a 20% jump, it is not a wild growth runway by any means.

Struggling Metrics- In the trailing 12 months, Men’s Wearhouse has seen its Days Sales of Inventory jump from 145 to 167 and its Inventory Turnover drop from 2.52 to 2.18.  Long story short, this is largely due to the company’s increase in inventory, as it now makes up 41% of total assets.  With Days Inventory historically closer to 150 and Inventory Turnover around 2.5 on average, it will be pivotal for the company to continue clearing its excess inventory.

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