Men's Wearhouse vs. Jos. A Bank: The Drama Continues


Men's Wearhouse and Jos. A Bank don't seem to get along very well. Jos. A Bank wants to acquire Men's Wearhouse for a significant premium, which would reward Men's Wearhouse shareholders. However, Men's Wearhouse feels as though the Jos. A Bank offer isn't high enough. But that's just the basic premise of what has been taking place between these two apparel companies that focus primarily on menswear. There's more to the story.

October 31, 2013: the nightmare continues

On Halloween, Jos. A Bank publicly announced that it would reconsider raising its offer price for Men's Wearhouse if Men's Wearhouse would provide nonpublic information that proved Men's Wearhouse was worth a higher price. Jos. A Bank followed up this offer with the statement that the offer would be removed from the table if Men's Wearhouse didn't offer this information prior to November 14, 2013. At the same time, Jos. A Bank stated that its current offer would create immediate value for shareholders in an uncertain economic and retail environment.

November 4, 2013: the response

Men's Wearhouse stated that its Board of Directors, in conjunction with its legal and financial advisors, determined that presenting Jos. A Bank with its nonpublic information wouldn't be in the best interest of the company and its shareholders. Men's Wearhouse further stated that Jos. A Bank was significantly undervaluing Men's Wearhouse, and that its strategic plans would create more long-term shareholder value than Jos. A Bank's proposal.

November 4: 2013: immediate reaction

Jos. A Bank's response was short and to the point, stating that it was disappointed in Men's Wearhouse's position, and that Men's Wearhouse wasn't acting in the best interest of its shareholders. Jos. A Bank reaffirmed that its offer would remain available until November 14, 2013.

November 5, 2013: the investigation

Johnson & Weaver announced that it's investigating Men's Wearhouse on the premise that the company isn't acting in the best interest of its shareholders. Johnson & Weaver points out that once the Jos. A Bank offer was made public, on October 9, 2013, the stock traded as high as $47.29, and once the offer was rejected on November 5, 2013, the stock dropped to $42.09. At the time of this writing, the stock is trading at $45.09, making it difficult to decipher which side's position is more justifiable.

November 12, 2013: interesting timing

Jos. A Bank announces that it expects its Q3 adjusted profit to improve year over year. EPS is expected to come in between $0.49-$0.51, versus $0.47 in the year-ago quarter. Sales also expected to increase in the mid-single digits, and comps are expected to be flat.

Why Jos. A Bank is interested

Jos. A Bank has rewarded its shareholders well for many years, but over the past three years, the stock has only appreciated 16.06%, whereas Men's Wearhouse's stock has appreciated 77.70%. This has to be somewhat frustrating for Jos. A Bank. On top of stock performance, Men's Wearhouse yields 1.70%, whereas Jos. A Bank doesn't offer any yield.

Consider top-line performances for these two companies over the past year:

MW Revenue (TTM) Chart
MW Revenue (TTM) Chart

MW Revenue (TTM) data by YCharts

Neither company is tearing the cover off the ball, but Men's Wearhouse is outperforming. Now take a look at the bottom line:

MW EPS Diluted (TTM) Chart
MW EPS Diluted (TTM) Chart

MW EPS Diluted (TTM) data by YCharts

A similar pattern presents itself.

Men's Wearhouse clearly knows something we don't know, but we don't know what that is.

If you're interested in investing in menswear, then you might also want to consider going with a company with much broader geographic exposure, marketing power, and brand diversification in Macy's .

In regards to brand diversification, Macy's menswear brands include Calvin Klein, Dockers, Levi's, Nautica, Ralph Lauren, Sean John, The North Face, Tommy Hilifger, and more. Macy's also offers consistent sales to drive demand. For instance, Macy's is currently offering a 25%-60% sale for menswear. Additionally, Macy's yields 2.20%, and it's trading at 11 times forward earnings, whereas Men's Wearhouse and Jos. A Bank are trading at 16 and 19 times forward earnings, respectively.

Also consider Macy's performance on the top and bottom lines over the past year:

M Revenue (TTM) Chart
M Revenue (TTM) Chart

M Revenue (TTM) data by YCharts

While these trends are far from spectacular, they indicate stronger momentum than both Men's Wearhouse and Jos. A Bank.

The bottom line
A deal between Men's Wearhouse and Jos. A Bank doesn't seem likely at this point in time, which means increased downside potential for Men's Wearhouse after the stock's run-up based on the potential of a deal. However, the potential of a deal can't be ruled out. Jos. A Bank, on the other hand, recently increased its outlook for the third quarter. But without a deal, it will take a lot for Jos. A Bank to consistently improve its top line in the current retail environment. Macy's has been performing relatively well (not exceptionally well), it offers greater geographic exposure, broad product diversification in menswear, it yields 2.20%, and investors don't have to deal with high drama.

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