Men's Wearhouse: Dressed for Success

Men's Wearhouse, which sells discounted suits and tailored clothing , was on the ropes in the 1990s when blue jeans, polo shirts and casual Fridays ruled the office. But the Texas company spent its time in the wilderness gaining market share from other menswear retailers. Now, corporate attire is dressier again, so Men's Wearhouse stock (symbol MW) looks spiffy, says Stifel Nicolaus analyst Richard Jaffe.

Men's Wearhouse is best known for its commercials starring bearded CEO George Zimmer and his pitch line, "You're going to like the way you look. I guarantee it." But it was the stock, not the wardrobe, that turned heads when Men's Wearhouse beat average analysts' estimates handily for the quarter ending January 28, according to Thomson First Call. The strong performance -- 60 cents a share against forecasts of 53 cents -- prompted Jaffe to raise his estimate by 28 cents for the year ending January 2007, to $2.34 per share. He also bumped up his target price by $4, to $42. Jaffe rates the stock "buy."

There's more here than suits. Jaffe cites improved profit margins from its private-label business, growth in the number of stores and a robust marketing and loyalty program. And, on prom night, Men's Wearhouse hopes to be king. Tuxedo rentals, a very high-margin business, will be a boost during the upcoming spring quarter, Jaffe says.

Clothes aren't the only thing discounted at Men's Wearhouse. The stock, recently $36, trades for 16 times Thomson First Call's average 2006 earnings estimate of $2.25 per share. Jaffe expects profits to grow 13% to 15% annually over the next several years, so the stock is reasonably priced.

--Thomas M. Anderson