Which of These 3 Apparel Retailers Are Worth Buying?
Dec 23rd 2013 11:32AM
Updated Dec 23rd 2013 11:34AM
Jos. A. Bank Clothiers and The Men's Wearhouse have recently been trying to one-up each other by unilaterally throwing take-over bids at each other. While these two are engaged in battle, it is business as usual at Oxford Industries , which could be an ideal pick for investors looking for a more stable play in men's apparel.
The apparel retail industry hasn't been in good shape due to macro-economic headwinds. With a few exceptions, most companies in the segment have reported lackluster results for a large part of the year. A projection indicated that into the holiday season, the men's apparel market segment would see a sharp decline of 3.62%. With this projection as a backdrop, let's look at the investment potential of these three companies.
A closer look at Jos. A. Bank
Things were looking bright for Jos. A. Bank during the run-up to the release of its third-quarter results. Jos. A. Bank was the first to fire a shot in the men's retail bidding war--it made a bid for Men's Wearhouse in October. Jos. A. Bank offered $2.3 billion, or $48 a share, for Men's Wearhouse, but the bid was quickly turned down. However, Jos. A. Bank's management did not rule out another bid.
But Men's Wearhouse turned the tables by making an offer to buy the bargain suit and menswear retailer, Jos. A. Bank, for $55 per share. News of the takeover bid sent shares up from $50.60 to $56.84 apiece, and shares held onto that price going into the third-quarter earnings report.
Jos. A. Bank reported a terrific third quarter, crushing Street expectations on both earnings per share and revenue. Net sales in the quarter surged 6.3% year-over-year to $247.5 million, as the company reported a 23.5% gain in direct marketing sales. The growth was primarily fueled by improved direct marketing sales and an omni-channel sales strategy.
Comps, including Internet sales, improved 2.4% in the reported quarter, thereby reflecting the success of the omni-channel model. The addition of 28 new stores during the first nine months of the fiscal year also helped in improving the top line.
Earnings increased by 9% versus the same quarter last year to $0.51 per share, beating Street expectations by $0.06 per share. According to the company, the impressive third-quarter performance was due to the implementation of new promotional strategies over the past few quarters.
The investments in search engine optimization that Jos. A. Bank made during previous quarters were the main driver behind the growth of Internet sales. The company's proprietary database of active customers for both its retail stores and its online operations grew 8% in the third quarter from last year to well over 4 million active customers.
Jos. A. Bank sees huge potential in international markets. During the quarter, it shipped to 90 countries worldwide compared with 70 in the year-ago period. In addition, the tuxedo rental program has also been growing ever since it started in 2010.
What's The Men's Wearhouse up to?
After Jos. A. Bank abandoned the takeover bid of The Men's Wearhouse, the tug of war between the two took a new turn when Men's Wearhouse initiated a takeover bid to acquire the former. It goes without saying that The Men's Wearhouse shares rose after this bid and they now trade at 52-week highs. The third-quarter report also helped Men's Wearhouse maintain its share price.
Men's Wearhouse reported the 15th consecutive quarter of positive comps growth, which came in at 2.6% year-over-year, with most of the growth coming from in-store sales. Online sales also registered double-digit growth . On the back of positive comps and new store openings, revenue increased 2.8% versus the same period last year to $648.9 million.
Adjusted diluted earnings came in at $0.90 per share. The results were in-line with guidance and below 2012's third-quarter results, primarily due to a lower tuxedo margin.
Going forward, the company sees an opportunity for 100 full-line Men's Wearhouse stores and 100 outlet stores. It aims to open a total of 50 stores by the end of 2016 and it plans to take a pause at each step to ensure that its strategy has delivered the desired results.
Oxford Industries: away from the limelight
While the above two retailers are busy haggling with each other over take-over bids, investors can also look at another well-positioned company, Oxford Industries, in the men's casual-apparel space. Oxford Industries, the company that owns the Tommy Bahama, Lilly Pulitzer, and Ben Sherman brands, posted its third-quarter results just a few days back.
One of the most striking points about Oxford's results was that despite a fragile economy and the availability of many good deals elsewhere, Oxford was playing its own game of no-discount sales, and this panned out pretty well. Consolidated net sales increased 9% to $197.5 million which compares with $181.4 million in the same period last year. Earnings per share were in line with the company's guidance at $0.10.
Six weeks into the fourth quarter, and most importantly in the midst of the holiday season, both Tommy Bahama and Lilly Pulitzer are seeing strength in the e-commerce channel and also in retail stores. Based on the trend so far, the company is confident of delivering a solid fourth-quarter result .
However, Oxford is quite expensive at a P/E ratio of 33.74, which is why conservative investors might consider staying away from it. Its revenue growth was in the single-digits in the previous quarter and investors might not find this good enough if they are looking to buy a stock that trades at such a high multiple.
Oxford is quite expensive compared to Jos. A. Bank and Men's Wearhouse. Both trade at 52-week highs, but Men's Wearhouse is cheaper at a P/E of 21.78 while Jos. A. Bank trades at almost 25 times earnings. Also, Men's Wearhouse pays a dividend with a yield of 1.40%, while Jos. A. Bank doesn't pay any dividend. Hence, investors looking for value in the men's apparel space may be better off looking at Men's Wearhouse.
Who is taking over retail?
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The article Which of These 3 Apparel Retailers Are Worth Buying? originally appeared on Fool.com.Fool contributor Prabhat Sandheliya 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.