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.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.


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

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


Increase your money and finance knowledge from home

Managing your Portfolio

Keeping your portfolio and financial life fit!

View Course »

Investing in Startups

The lucrative and risky world of startups.

View Course »

Add a Comment

*0 / 3000 Character Maximum