Opportunities
Corporate Apparel- Having posted an 18% increase in sales during 2010 and finally finding profitability in the first 9 months of 2012, the company’s Corporate Apparel segment has begun to produce. Pairing up American based Twin Hills with the addition of British Dimensions and Alexandria , Men’s Wearhouse continues to grow its secondary segment, which now accounts for 9% of overall sales.
International Expansion- Through its Moores line of stores, the company has successfully moved into the Canadian retail space in addition to its corporate apparel segment in the U.K. While they do not have an immediate plan for further international growth, the company’s sales in the U.K. and Canada offer the opportunity for further growth in their respective geographies, particularly with Europe, as it is the largest clothing retail industry in the world.
Acquisitions- With a history of smart acquisitions and a debt free balance, there is always an opportunity for Men’s Wearhouse to find another great company at a reasonable price. From Alexandria to Dimensions, or After Hours Formalwear to Moore’s, Men’s Wearhouse is willing to buy reasonably priced growth.
Threats
Jos. A. Bank- Representing the company’s most direct line of competition, Jos. A. Bank can almost be seen as a mini Men’s Wearhouse. With no international operations, Jos. A. Bank is looking to continue building its U.S. presence, which means attempting to steal market share from Men’s Wearhouse. However, lowering its full year 2012 profit guidance, Jos. A. Bank has shown that expanding an additional 150 stores from its current total of 500 could be harder than expected. Posting a Days Inventory ratio of 308 and an Inventory Turnover ratio of 1.18, the up and coming retailer has a long ways to go to reach Men’s Wearhouse and its strong metrics.
Macy’s (NYSE:M) – Posting strong 4th quarter results, Macy’s welcomed in its new fiscal year by growing its Omnichannel operations and delivering 48% sales growth year-over-year with its online sales. By focusing on its Omnichannel operations, the company aims to fulfill orders online from any of its current stores, giving it quite a leg up on its peripheral competitors in Men’s Wearhouse and Jos. A. Bank. Despite this success, however, Macy’s inventory levels have jumped at an alarming rate, up from 23% of total assets last year to 32% this year.
Rough Retail Competition- As mentioned, Jos. A. Bank offers the company’s most direct public competition, but Men’s Wearhouse also faces stiff competition from private firms in Burlington Northern Coats , BrooksBrothers , and many old-fashioned mom and pop style stores. Pair that up with peripheral competition from Macy’s and J.C. Penney with its new CEO Ron Johnson, and this American retailing niche could prove treacherous.
Valuations
| Company | P/E & Forward P/E | P/FCF | P/B | 10 yr Rev Growth | 10 yr EPS Growth | Cash/Debt | Dividend | Graham # |
| Men’s Wearhouse | 11/10 | 8 | 1.3 | 8% | 14% | $138M/0 | 2.6% | $34.56 |
| Jos. A. Bank | 12/13 | 9 | 1.8 | 13% | 18% | $275M/0 | NA | $41.85 |
| Macy’s | 12/10 | 7 | 2.8 | 6% | 6% | $1.3B/6.9B | 2.1% | $32.22 |
While the numbers here are somewhat similar, Men’s Wearhouse has 3 specific numbers that give it an edge over its competitors.
1. No Debt- Jos. A. Bank also has no debt — and even has more cash on hand — but it doesn’t have a dividend, which brings me to my next point.
2. A Dividend- Coming in at a 2.6% yield, Men’s Wearhouse offers a high quality dividend that has doubled over the last year and has been paid out for the last 7.
3. Graham Number- While it hasn’t made dividend payments long enough to technically qualify as an Intelligent Investor pick by Ben Graham, it does trade at a 20% discount to its Graham Number.
All in all, with its cheap valuation, discount to Graham Number, gracious dividend, and steady success, I see Men’s Wearhouse as one of the most consistent clothing retailers out there. At these prices I believe it is worth an investment and will give it a green thumb on CAPS.
The article Men’s Wearhouse is Dressed For Success originally appeared on Fool.com.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
