Why Men's Wearhouse suits investors
The potential takeover battle starring ousted founder George Zimmer is adding to the stock's allure, thanks to recent strong performance.
First, the clothing retailer ousted founder George Zimmer, its well-known TV pitchman since 1985, without explanation. Then after getting pummeled on Twitter and by irate customers, Men's Wearhouse released a statement Tuesday saying Zimmer, who was CEO from 1991 until 2011, was fired because he had difficulty letting go of the reins of power.
Zimmer also clashed with his CEO successor Douglas Ewert over strategy. Ewert wanted to sell the company's underperforming K&G stores, which Zimmer opposed. And Ewert was against Zimmer's plan to sell the entire company.
Zimmer, best known for his tagline "You are going to like the way you look. I guarantee it," has been keeping a low profile since he was ousted and is said to be consulting with advisers about his next move.
But before we discuss what may be, let's take a closer look at Men’s Wearhouse now. The chain, which owns 1,143 stores, is doing surprisingly well. Its latest quarterly results were better than analysts expected. Moreover, whatever weaknesses it has aren't monumental given the strength in its core Men's Wearhouse business.
K&G reported a 5.3% decline in same-store sales (revenues at stores open at least one year), and it represents about 16% of overall sales. The company's Moore's stores generate about 9% of sales and reported a same-store sales decline of 2.8%. But same-store sales at the Men's Wearhouse chain, which accounts for 65% of total revenue, surged 7.1%.
Shares of Men’s Wearhouse have spiked because of the Zimmer saga -- and Wall Street’s expectation of a takeover battle -- gaining almost 6% on Tuesday. They may go higher regardless of the outcome because the company already has plenty going for it. It launched a new e-commerce site, which should help bolster its bottom line, as will the economic rebound.
Zimmer doesn't own enough shares to take over Men's Wearhouse himself, but he shouldn't have trouble finding a partner because the stock is cheap. It trades at a price-to-earning ratio of about 13.14, near its five-year low, and it's less expensive than rival Jos. A. Bank (JOSB), which has a multiple of about 16.
Odds are Men's Wearhouse shares won't stay on the discount rack for long.
Jonathan Berr can rock a superhero T-shirt with the best of them. He doesn't own shares of the listed stocks. Follow him on Twitter @jdberr.
If there was no Zimmer then Men's Wearhouse would not exist. Zimmer is successful because he is passionate about his stores. Money is second to his desire to making his clothes affordable to everyone.
I support Zimmer 100%. To support him and make a statement I went to the nearest K&G on Friday just to make a purchase. Don't throw the baby out with the bath water.
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The company, headed for an IPO later this year, is worth as much as 10 Tesla Motors combined, says Bernstein's Carlos Kirjner.
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