21 September 2005
Discount Mens Clothing - Casual Male and Men's Wearhouse
Continuing with the discount shopping thesis, let's compare a couple of low-end men's clothing stores, Casual Male, CMRG, and Mens Wearhouse, MW. Here are some numbers, including a new one for me, the PEG, or the price to earnings ratio, divided by the earnings growth rate. A PEG below 1.0 shows that a stock has a low price for its potential growth.
Ticker/Name/Price/52-Week Range/PE Ratio/Gross Margin/Profit Margin/PEG
CMRG - Casual Male - $6.30/$4.31-7.95/45.29/39.38%/0.07%/1.15/Big and tall men's apparel.
MW - Mens Wearhouse - $26.07/$18.33-37.44/17.15/40.00%/5.64%/1.38/Low-price-point men's business and casual wear.
George Foreman may not sell grills at Casual Male, but he has clothing lines with his name emblazoned on the offerings. Just look closely at his jacket sleeve in the above photo. Would you expect anything less modest from George? Speaking of modest, CMRG has a modest price if you don't take into account the incredible 45+ PE ratio, and its meager profit margin of .07%. The guys at thestreet.com's Stocks under Ten have a much more flamboyant outlook on CMRG:
The company appeared on our radar screen as a low-dollar way to play a
slowdown in consumer spending on high-end clothing. Casual Male group
has been publicly traded for 15 years and sells casual and formal
attire for big-and-tall men through its 500 stores in the U.S. and
Industry experts say the big-and-tall market is currently $5.5 billion
to $6 billion, and research firm Thompson Davis reports that 49 states
now classify 15% or more of their population as obese, vs. just four
states in 1991, giving Casual Male an expanding customer base.
In 2004, Casual Male sold off its stake in Levi's and Dockers outlet
stores and bought high-end, big-and-tall company Rochester Big & Tall.
Rochester cost Casual Male $15 million in cash and the assumption of
$5 million in debt, and added 22 stores to its total store count. The
swap-out of outlets and into Rochester refocused Casual Male on its
core business and should lead to operating efficiencies in the future.
In addition, Casual Male now carries name-brand clothing in
big-and-tall sizes, providing its customers -- regardless of height or
weight -- the opportunity to wear the latest in fashion. Partners
include Polo, Perry Ellis and Sean John. And in 2003, the company
began working with boxing legend George Foreman to offer sporty
clothing for the big-and-tall male.
The consensus outlook for full-year 2005 calls for sales of $440
million and earnings of 23 cents a share, a nice potential boost from
2004 levels when the company earned 2 cents a share on sales of $365
million. The Street's earnings consensus looks attainable given Casual
Male's recent initiatives designed to increase store traffic through a
customer loyalty program and its plans to add another 5% to its total
store count by the end of 2006.
As I'm neither big, nor tall, I haven't had any personal shopping experiences at Casual Male. The Stocks under Ten guys may have found an interesting pick, but they could also be struggling to find a stock that fits into their main criteria, a stock under ten dollars. But this isn't a cheap stock as you're paying quite a lot for CMRG's earnings. And you're paying for a growth story, even though the PEG isn't below the magic one-point-oh.
Mens Wearhouse came to mind immediately when I started thinking of discount shopping. My first experience with the chain was back in 1999, when I was fresh off the U-Haul, back on the East Coast. I had my one Brooks Brothers suit, but since I was starting out not as a big-firm associate, but a big-firm contract attorney, I needed to stock up on some inexpensive Tuesday through Friday suits.
I bought three at the Deptford, NJ location. I believe the store manager helped me, and the customer service was quite friendly.
I started work, and within the month, business casual reached the distant shores of Newark, New Jersey, and I was wearing khakis and polos by October. And not a moment too soon as the Mens Wearhouse suits began to look like they came from Mens Wearouthouse...(rim shot). I can't imagine I'm that hard on a suit; sitting for eight hours a day in front of a computer shouldn't wear out fabric so quickly.
Since 1999, the only purchase I've made at a Mens Wearhouse is a black leather belt. Still have it. Keeps the pants up. Works just fine.
The stock, on the other hand, has taken a beating very recently, and is trading around the middle of its 52-week range. I read that George Zimmer, the face and CEO of the company recently fell ill and had surgery; I wonder if those events, plus the retail sector slump contributed to its downward trajectory.
Still, MW has a reasonable 17 PE, and makes a healthy profit. But MW is not a growth story, as there are locations in 44 states and 10 provinces.
So, CMRG has a bit of a growth story, say a growth novella, whereas MW has the sounder fundamentals and a plummeting price. If I were to choose between the two, I'd buck thestreet.com and go with MW, but I think I'll keep looking for another pick for my discount shopping thesis.
Posted by WershovenistPig at 8:30 PM