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Men's Wearhouse Tightens Belt


Retailer lowers second-quarter guidance.

On Wednesday, specialty retailer Men's Wearhouse (MW) released a downbeat second-quarter forecast, estimating earnings from $0.61 to $0.65 per share and adjusted earnings of $0.70 to $0.74 per share. A decline in per-store tuxedo rentals contributed to the slump, the firm reported. If you've ever attempted to be debonair while wearing a fuchsia cummerbund, this might seem like good news, but it's bad news for investors.

Analysts had projected adjusted earnings to come in at $0.75 per share; Men's Wearhouse itself provided guidance of $0.69 to $0.73 and $0.75 to $0.79, respectively, in conjunction with the release of its first-quarter numbers at the end of May.

Another reason for the downturn: Costs associated with the closing of a Canadian manufacturing facility operated by the firm will run higher than was previously reported, diluting earnings per share by $0.09 rather than $0.06.

Management maintained, however, that the company will still be able to meet its full-year guidance (adjusted earnings of $1.75 to $1.85 excluding closure costs; $1.65 to $1.75 including costs).

Given that management's initial guidance was released less than two months ago, on May 28, I'd be inclined to take their continuing reassurances with a grain of salt. Either they're 1) waiting to see how the full quarter plays out before updating the numbers, or 2) they're confident of their previous forecast.

Frankly, I feel confident that it's option 1, and that they'll be forced to lower their guidance once final results for the second quarter are known. The sell side could also very easily ratchet its numbers down in the near future, further depressing the stock.

And you'd we wise to take a look at the stock price: It's currently near its 52-week low. If things don't turn around soon, or if a catalyst for the shares doesn't emerge, I think that tax loss selling could be quite brutal.

It just makes good sense to hold out for a better entry point on Men's Wearhouse.

Men's Wearhouse closed at $16.72, down 84 cents, or 4.78%.
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No positions in stocks mentioned.

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