Why Men's Wearhouse Shares Sank

Why Men's Wearhouse Shares Sank

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of men's clothing retailer Men's Wearhouse sank 12% today after its quarterly results and outlook missed Wall Street expectations.

So what: The stock has rallied sharply over the past few months on signs of recovering demand, but today's second-quarter results -- EPS fell 26% on a revenue decrease of 2.3% -- coupled with downbeat guidance are forcing Mr. Market to sober up. In fact, comparable-store sales at its namesake chain grew a paltry 0.7% while total gross margin slipped 65 basis points, suggesting that its competitive position is weakening.

Management now sees full-year EPS of $2.40-$2.50, down significantly from its prior view of $2.70-$2.80. "We are being cautious as we face macroeconomic headwinds," said CEO Doug Ewert. "However, we believe our operating and capital allocation plans, our margin enhancement strategies, including new store openings and the expansion of exclusive brands, and our new omni-channel marketing initiatives introduced in 2013 position us to grow market share as we manage through this." With the stock still up about 25% from its 52-week lows and trading at a near-15 P/E, however, I'd hold out for an even wider margin of safety before buying that turnaround talk.

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The article Why Men's Wearhouse Shares Sank originally appeared on Fool.com.

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