Shares of Houston-based Men's Wearhouse (NYSE:MW) have come off of their lows, but are still pretty shy of where they were back in early/mid 2007. But with the economy on its way back, is now the time to try the retailer on for size?
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No Fitting Needed
To the company's credit, it does have several things going for it. For one, it sells some very nice suits, which will bring clientèle through the door. Second, the stock is near a 52-week high, and if it can make a new high there is a chance that it could draw in new investors. Third, the company is coming off a better than expected quarter. In fact, this past week the company reported that in the second quarter it generated EPS of 75 cents, which was slightly better than the 61 cents Wall Street analysts had been looking for.
However, there are a few things that cause concern about the overall situation. The economy will be incredibly strong in the near-term, and therefore investors should be wary about the demand for suits and finer clothes in general.
The company's third quarter outlook is also worrisome, as it offered along with its second quarter numbers. More specifically, in the release it offered the following: "For the third quarter, the company expects GAAP diluted earnings per common share to be in a range of 27-30 cents." Note that the analyst estimate is 32 cents.
It is important to realize that Men's Wearhouse trades at around 21 times next year's estimate of $1.15, which is a bit of a turnoff. All and all, there are better opportunities to be had out there.
Other High-Priced Stocks
Men's Wearhouse clearly isn't the only retailer that looks expensive. Abercrombie (NYSE:ANF), which probably nobody would consider a competitor, but is most obviously a big name in retail, trades at more than 30-times this year's estimate, which is far too high. Also, J Crew (NYSE:JCG) is expensive, at above 28-times this year's estimate of $1.22.
Meanwhile, JC Penney (NYSE:JCP) also sells men's wear (among other things) and trades at more than 30 times this year's estimate of 94 cents. Norsdtrom (NYSE:JWN) isn't cheap either, but looks a bit more reasonable at 19-times this year's estimate of $1.58.
The Bottom Line
Although Men's Wearhouse carries nice clothes, and could have some potential in the longer run, investors should remain reluctant to get involved based upon its high price-to-expected earnings multiple, and its outlook for the third quarter. (To learn more, check out Analyzing Retail Stocks.)
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