MW: A Buyer not a Seller

Men's Wearhouse reported 1Q EPS of $0.10 vs. 1Q08 EPS of $0.20 and far better than the Street which was looking for a breakeven quarter.  Results were better across the board with same store sales coming in above expectations, gross margins less bad, and SG&A expenses well controlled.   Perhaps the most surprising factor in the upside was the gross margin line, which was under considerable pressure in 4Q08 due to the company's decision to BOGO suits.  Offsetting this margin pressure was a solid performance from the company's tuxedo business, which grew by 1.7% in the quarter and helped to offset merchandise margin declines in the core retail business.  Overall, a solid performance and yet another example of "stabilization" in the marketplace.

 

More interesting than the 1Q results is the company's bid of $67 million for Filene's Basement (out of bankruptcy).  The company actually delayed its quarterly conference call as it awaits final court approval on the offer.  Remember, that only a few weeks ago (see our note: Activism Brewing?) we pointed to a new change in control clause in the proxy which essentially gave executives added compensation if the company were to be acquired - the same type of clause used to scare away activists.  Now it goes ahead and bids for Filene's. Interesting narrative.  The purchase price includes 17 of 20 leases, inventory from a total of 25 locations, leases on the headquarters and distribution facility, as well as the Filene's Basement trade name. 

 

MW's strategy is historically rooted in EDLP.  If you think about it, an off-price chain presents unique opportunities for the company as it diversifies the customer base with a heavier focus on women, offers a channel to clear goods from the namesake chain, and potentially gives the company a growth vehicle for the future.  Additionally, with the success of off-pricers lately (take a look at a ROST or TJX chart), the severe mismanagement of Filene's Basement over the past few years, and the fact that there is still a deep heritage associated with the brand, this might end up being the type of ownership structure that can give Filene's Basement another chance. 

 

If there is one thing to hope for (admitting that 'hope' is not an investment process), it's that MW brings back the automatic markdown system that actually made Filene's Basement an icon in the industry for so many years.  Yes, it actually was 'iconic' in the retail landscape of yesteryear. This is the type of differentiator that can make this small, regional off-price retailer stand out from the rest of the pack.  For those of you unfamiliar with the automatic markdown system, give us a call and we'll walk you through a quick recap in retail history.  In the meantime, it's probably worth switching gears to focus on MW's plans for growth rather than who might be buying them.

 

Eric Levine

Director


Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more

Premium insight

[UNLOCKED] Today's Daily Trading Ranges

“If I could only have one thing of the many things we have it would be my daily ranges." Hedgeye CEO Keith McCullough said recently.

read more

We'll Say It Again: Leave Your Politics Out of Your Portfolio

If your politics dictates your portfolio positioning, the Democrats and #NeverTrump crowd out there have had a hell of a week.

read more

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more