The Men’s Wearhouse (click ticker for report: ) reported strong second-quarter results Wednesday afternoon and boosted its earnings outlook. Sales rose 1% year-over-year to $662 million, roughly in-line with consensus expectations. Earnings grew 6% year-over-year to $1.15 per share, a few pennies more than expected. The firm increased its earnings outlook for the year to $2.74-$2.80 (from $2.70-$2.78), above the consensus estimate of $2.71 per share.
CEO Doug Ewert cited strong tuxedo rental growth–a high margin business–as one of the firm’s key earnings drivers. Same store sales at the company’s namesake brand, which accounts for 65% of revenue, grew 4.4% during the second quarter. We think Men’s Wearhouse may be a beneficiary of increased men’s apparel spending, especially since we are witnessing a return to formal wear with a modern take. Jos. A Bank (click ticker for report: ), for example, reported similarly strong results. However, K&G Superstores continue to struggle, with same-store sales tumbling 3.3%, though Canadian segment Moore’s posted revenue gains of 2.5%–better than management’s internal forecast. Though we’re fairly optimistic about the company’s long-term prospects, we don’t think shares are very attractive at this time. On top being fairly valued, shares score a 4 on our Valuentum Buying Index (out stock-selection methodology), so we do not feel the Men’s Wearhouse is an intriguing opportunity.
H&R Block (click ticker for report: ) reported its typical first quarter loss due to its highly seasonal tax business. The firm posted $96 million in revenue, down slightly from a year ago and also mildly worse than consensus projections. Earnings per share improved by 3% year-over-year to ($0.38), roughly in-line with expectations.
Given the seasonality of the firm’s business, there wasn’t much to report on other than the firm retired 21.3 million shares. Over the past year, the firm has reduced its float by over 11% and paid investors a relatively high yield (5% at current levels). After speculating in the mortgage origination business during the housing boom, the firm is now focusing on its core services and returning cash to shareholders. The firm expects $80-$100 million in cost savings this year to help grow operating margins and earnings. We’re fans of the tax-services company at current levels, as it registers a 7 on the Valuentum Buying Index and has excellent dividend growth potential. We’re strongly considering the firm for addition to the portfolio in our Dividend Growth Newsletter, as we expect its mature tax services business will remain a cash cow. We don’t view the political rhetoric regarding tax overhaul as a probable threat to the company’s business.
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