Men's Wearhouse (MW) reported a second-quarter earnings surprise of 2.7% earlier this month, marking its ninth beat in the past 10 quarters. Shares of the menswear retailer have gained some 30% in the past two months, and closed Friday at $34.43.

A fairly impressive dividend yield of 2.1% and an enhanced earnings per share guidance for the full year make this Zacks No. 2 rank ("buy") an attractive pick for investors looking for growth and income.

On Sept. 5, The Men's Wearhouse reported fiscal second-quarter earnings of $1.15 per share, beating the Zacks Consensus Estimate of $1.12 and increasing 3.6% year over year. Results were driven by increased gross margin in the retail segment and a lower tax rate.

Revenue crept up 1% year over year to $662.3 million from $655.5 million. However, it marginally missed the Zacks Consensus Estimate of $663 million.

Gross profit increased 3.6% to $320.3 million from $309.2 million a year earlier, primarily due to lower costs of goods sold as a percentage of sales. Consequently, gross profit margin expanded 120 basis points to 48.4% from 47.2%.
 

Increased merchandise gross profit led to a 2.9% increase in operating income to $91.6 million from the prior-year level of $89.0 million. Consequently, operating margin expanded 20 basis points to 13.8%.

Promising guidance

Men’s Wearhouse raised its guidance for fiscal 2012 while also setting out targets for the third and fourth quarters. The company expects full-year earnings per share between $2.74 and $2.80, up from its prior guidance of $2.70 to $2.78. Earnings per share for the third quarter are forecast at 95 cents to 98 cents, while the fourth quarter is seen at 12 cents to 15 cents.

Total net revenue for fiscal 2012 is anticipated to increase between 4.8% and 5.6% versus the prior guidance of 4% to 5%. Sales for the third quarter are expected to advance between 8.8% and 9.3%, while the fourth quarter is forecast to increase 11.3% to 11.8%.

Guidance drives estimates

The Zacks Consensus Estimate for fiscal 2012 rose 2.2% to $2.78 per share in the last 30 days on upward movement in five of six estimates. This represents year-over-year growth of 17.2%. The Zacks Consensus Estimate for fiscal 2013 advanced 1.6% to $3.11 per share over the same time frame as five of seven estimates moved upwards. This reflects year-over-year growth of 11.8%.

Strong dividend

In addition to maintaining steady earnings growth, Men’s Wearhouse has been rewarding shareholders with regular quarterly dividend payments for the past several years. Currently, the company pays a quarterly dividend of 18 cents per share, which yields a solid 2.1%. The company has a payout ratio of 25%, while its 5-year annual dividend growth rate stands at 21.98%.

Favorable valuation

Men’s Wearhouse currently trades at 12.4 times forward earnings, reflecting a 24.4% discount to the peer group average of 16.4. On a price-to-book basis, shares trade at 1.6, a 41.6% discount to the peer group average. The company’s compelling fundamentals are well supported by its long-term estimated earnings per share growth rate.

Strong chart

The chart below indicates a steady growth in the company’s share price in the last two months, reflecting an upside of about 31.3%. Currently, shares of Men’s Warehouse are trading above its 50 and 200-day moving averages. Average volume also remains fairly strong at roughly 595K daily.

Operating nearly 730 core Men's Wearhouse and Moores brand full-line stores in the United States and Canada, the company has successfully expanded the demographic appeal of these brands. Furthermore, the company’s strong brand positioning, strategic marketing initiatives, store expansion plans, consistently rising estimates and an impressive dividend yield offers considerable upside potential.

Founded in 1973 and headquartered in Houston, Tex., Men’s Wearhouse now has more than 1,150 stores in the United States and Canada. The company mainly sells men's suits, sport coats, slacks, sportswear and outerwear as well as shoes and accessories. The company operates stores under the brand names Men's Wearhouse, Moores, K&G stores and Men's Wearhouse and Tux stores. Its K&G stores also feature women's apparel. The company's market value is $1.75 billion.

Read this article on Zacks.com
Read the full analyst report on "MW" (email required)