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SharpSEO (67.48)

Men's Warehouse: The Bull Case

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February 03, 2009 – Comments (21) | RELATED TICKERS: MW , GE

MW is a true value play at these levels (wait... don't leave!). In this case, value means the stock is actually cheap on a fundamental basis. It doesn't mean value trap, as in tons of debt, unsustainable dividend (think GE). Yes, Men's Warehouse has had a rough few quarters, but I feel that it has now officially reached dirt-cheap status. Let's take a look at MW:

#1 - Fundamentals: Total assets = $611 million, Total liabilities = $388 million. Price/Sales = .30, Trailing P/E = 8.1, Price/Book = .71.

 #2 - They sell the same products as the competition, but cheaper, and provide good service. Their discount retailer status should serve them well during this crisis.

#3 - Very little debt. So rare these days, and yet still taken for granted. Highly leveraged companies (cough, GE, cough) are what you wanna steer clear of now.

#4 - Beaten down - 20% of MW's float is short, so there's potential for a serious covering-rally. It's down from a high of over $50 in 2007 to $11 today. It may have farther to fall, but I think it's a good value here, and I'm going to average into a position starting this week.

#5 - Sustainable dividend of 2.4%. Their dividend payout ratio is only 20%. I love this kind of conservative management in this environment. (Note: their dividend was the same at $50 as it is now, so it wasn't management who got ahead of themselves...)

Almost everybody has given up on MW, which may be a good thing. Gotta have upgrades to move up. Plus, Standard & Poors just reduced them to sell. Based on S&P's recent failures and conflict-of-interest scandals , this could be a contrarian-buy-signal (MW is not a client of theirs, unlike many highly rated POS companies)

21 Comments – Post Your Own

#1) On February 03, 2009 at 12:55 AM, Bays (30.79) wrote:

You would like to think in these times if someone is to buy a suit, it would be at MW for a reasonable price.

That is if anyone even has a job left that would necessitate buying a suit.

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#2) On February 03, 2009 at 12:57 AM, awallejr (82.76) wrote:

It's not a bad call.  It is a play off of the "discounter" thesis.  Only problem I see is people will put off the new suits and stuff a little while longer. However if you are going to buy an $11 stock I still like GE better (its free cash flow more than covers the dividend and CEO is firm in keeping it).

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#3) On February 03, 2009 at 8:37 AM, djemonk (< 20) wrote:

That is if anyone even has a job left that would necessitate buying a suit.

The people in suits are the ones who decide how many and whom to lay off.  How many of these people do you really think come back to their boss with "I figured out what the problem is, and it's me."

We're going to see a glut of managers in American companies over the next year.  When you're a manager, the solution to most problems seems to be "more management."

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#4) On February 03, 2009 at 8:37 AM, Mary953 (62.05) wrote:

One non-numerical sign that I tend to look at is the need for a product in a pure-play.  GE=Electricity, now how many of us need that and who has  good market share?   MW sells clothing to men who are large (imuscular and/or tall) and who are overweight (short or tall).  Okay, those people in our society who have had very good nutrition and work out, both of which are easier now than ever before, are taller with each generation.  We as a nation are getting more overweight, and it takes me all of 5 minutes watching people at a sporting event, in a mall, at a restaurant, anywhere to find the need for clothes taylored for overweight people.  And I like the commercials. 

I like both.  The stock price may tip it a bit.  A lower price means a higher percentage on gains or dividends.

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#5) On February 03, 2009 at 8:39 AM, Gemini846 (83.54) wrote:

Whats the div growth look like on those guys? I had no idea they were public. I bought a few suits from them early in my career.

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#6) On February 03, 2009 at 9:25 AM, Bays (30.79) wrote:

So out of the 2.6 million people who lost jobs last year, and the 200,000 so far this year, none of them wore suits?

I'd tend to disagree on that one.

Either way, the comment was not meant to be taken seriously.

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#7) On February 03, 2009 at 10:24 AM, SharpSEO (67.48) wrote:

Oh yeah, I forgot to mention upcoming earnings. They report March 11th. It could be ugly, but expectations are very low. Waiting to buy until after earnings might be prudent.

Regarding suit sales during a downturn, I think it won't be as bad as expected. A lot of people getting fired means a lot of people needing new suits for their interviews.

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#8) On February 03, 2009 at 11:36 AM, Mary953 (62.05) wrote:

We have had a bunch of new people, new questions, and a few really great additions for a blog that I put up to show new CAPS members how they can use the site, so today, I am redoing the post with extra information and

THIS POST IS FEATURED AS A GOOD WAY TO USE THIS SITE!

I appreciate the information on Mens Warehouse, BTW, as my earlier comment shows.  Thank you for the work you did to put it together.  I really like the comment #7.  As to the 'newcomer blog', if you don't want to have your name in the next one let me know.  I only choose those that I have used myself and found to be the absolute best.  In fact, I compile it out of my following section. if you want to mark it for your "following" section, here is the link - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=139616&t=01007737217973478225

 

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#9) On February 03, 2009 at 4:27 PM, Bays (30.79) wrote:

I won't argue that they are a good company, but in general, I would stay clear of any business who depends on the American consumer. There is going to be some tough times ahead of us. 

If I am buying an American company, i'll stick to the ones with global operations--meaning they are not fully dependent on the American economy.

Although, if you are thinking long term as in 5+ years, i'm sure you'll be alright.  Especially since you can collect dividends while you wait it out.

Good luck

Bays

 

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#10) On February 03, 2009 at 6:47 PM, SharpSEO (67.48) wrote:

I hear you Bays. About 70% of my portfolio is short right now. Mostly REITs, some homebuilders, and financials.

But I need some longs as a hedge, particularly strong retail companies. If we really do print our way out of this problem, high-quality equities with valuable assets and cash-flow will be one way to dodge inflation.

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#11) On February 03, 2009 at 11:29 PM, Bays (30.79) wrote:

Yes, the government's most lethal weapon -- the printing press.

And yes I agree...  I'm not trying to be too speculative on any of my long positions.  I'm also sticking to high-quality equities, preferably with very little debt and a healthy cash flow. And also a dividend.

You'll never know when were at a bottom until were looking in the rear view mirror, but I'd like to think were close. 

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#12) On February 04, 2009 at 4:39 AM, falang1 (96.65) wrote:

"The people in suits are the ones who decide how many and whom to lay off.  How many of these people do you really think come back to their boss with "I figured out what the problem is, and it's me.  We're going to see a glut of managers in American companies over the next year.  When you're a manager, the solution to most problems seems to be "more management."

Great comment.  We recently consolidated 3 of our units into 1.  Instead of eliminating 2 unit presidents they made 1 super-president and 3 underling-presidents, thus actually adding an executive position.  One guess who came up with this idea...

For Mary, either you have Men's Warehouse mixed up with Big and Tall stores or I am out of touch.  When I used to go there they served everybody.  I am pretty normal sized.  They had great service and the quality was fine.  Would I buy the stock?...err not sure.  Probably not until this ship turns around.  I don't expect it to shoot off quickly.

 

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#13) On February 04, 2009 at 6:54 PM, SharpSEO (67.48) wrote:

Super-presidents, lol. Gotta love corporate bureaucracy....

Reminds me of the old saying, "at a bank, everyone is a VP". Or a senior VP, or some other overpaid exec.

That makes a lot more sense now that we're starting to find out how sound their business models are.

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#14) On February 05, 2009 at 2:38 AM, Bays (30.79) wrote:

Ya.... Mary, you are definitely thinking of the wrong company...  MW sells to the "average" person, not the "biggger person".

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#15) On February 05, 2009 at 11:02 AM, Mary953 (62.05) wrote:

You are both right, I was mixing them up a bit.  The Big and Tall store here went out of business.  MW took over the space, renovated and moved in.  But I still like their stuff.  I shopped there some at Christmas, just happened to be for some larger sizes.  And I definitely am not mixing up the ad campaign ("You're gonna' like how you look!  I guarantee it!"  Right?)

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#16) On February 05, 2009 at 12:52 PM, Bays (30.79) wrote:

Haha,

Yep, that's how it goes.

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#17) On February 20, 2009 at 10:42 PM, SharpSEO (67.48) wrote:

I ended up starting a small position in MW at $11.10, then a little more today at $10.00. Nothing big at all, waiting to see q4 earnings.

Watch those earnigns though, should be interesting. If the #s are anything but horrible, it could get a nice pop like ANF did. They may be horrible, but the bar is pretty damn low, expectations dismal.

Still feeling like I need more long exposure to cheap stocks. Have too many shorts now, even though they're working well lately. Been trimming them a bit, irrational bounce seems inevitable. Got some AAPL, GOOG, INTC, too.

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#18) On March 12, 2009 at 6:59 PM, SharpSEO (67.48) wrote:

"Watch those earnigns though, should be interesting. If the #s are anything but horrible, it could get a nice pop like ANF did. They may be horrible, but the bar is pretty damn low, expectations dismal."

Had to toot my own horn a wee bit.

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#19) On March 13, 2009 at 1:06 PM, Bays (30.79) wrote:

haha great call

I plugged it in my valuation calculators... and im getting anywhere between a conservative $20/share to an optimistic $43/share.

Either way, it seems like it's going to be able to weather the storm. 

I'm still staying away from retail though and also the USD.

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#20) On April 14, 2009 at 6:57 PM, SharpSEO (67.48) wrote:

Sold 1/2 of my MW position today @ $18.40 from $11.20 and $10, woohoo. I think we go back down for a while, maybe test lows.

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#21) On April 14, 2009 at 10:31 PM, Bays (30.79) wrote:

Very nice!

Instead of taking profits, I picked up some SRS today at 32 to hedge myself against a possible pullback.

I'm already sitting on a nice gain.

 

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