Men's Wearhouse plunges 25% after weak earnings

Men's Wearhouse revenue misses
Men's Wearhouse revenue misses

Men's Wearhouse's is struggling as it tries to figure out the best strategy for its business since buying rival Jos. A. Bank.

The men's clothing retailer reported Wednesday that sales at Jos. A Bank locations open at least a year tumbled 14.6 percent in the third quarter as fewer customers visited those shops. This metric is a key gauge of a retailer's health because it excludes results from locations recently opened or closed.

It shares dropped almost 25 percent in morning trading Thursday.

For the quarter to date, which includes part of the critical holiday shopping season, Jos. A. Bank same-store sales were down 35.1 percent while the company's other brands average same-store sales were up 5.5 percent. Men's Wearhouse Inc. said that if Jos. A. Bank continues to have troubles for the rest of the quarter the company will be at risk of missing the lower end of its full-year outlook.

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Men's Wearhouse CEO Doug Ewert said in a written statement that after buying Jos. A. Bank, Men's Wearhouse knew that it had to work on the promotions that the brand offered. It got rid of the "buy one suit, get three free" promotion that Jos. A. Bank used to offer. But Ewert said Men's Wearhouse underestimated how much doing away with such promotions would impact Jos. A. Bank's near-term performance.

The pains that Men's Wearhouse is experiencing seem similar to those that J.C. Penney has experienced. The department store operator had tried to reinvent itself under former CEO Ron Johnson by getting rid of most sales and some basic merchandise. But it led to billions in losses and sales declines. Johnson was eventually ousted and Mike Ullman came out of retirement to help the business with its recovery efforts.

Ewert maintains that the steps being taken at Jos. A. Bank are necessary and will help the business grow. The executive said that it is trying to re-engage with current Jos. A. Bank customers while also looking to bring back shoppers that have left the brand and draw in new customers. Ewert said some of the steps being taken include the rollout of a new Jos. A. Bank loyalty program, a new incentive program and providing a better product assortment.

Stifel, which is uncertain about Men's Wearhouse's prospects for near-term improvement, cut the chain's rating to "Hold" from "Buy."

Shares of Men's Wearhouse dropped $4.53, or 25 percent, to $13.85 in morning trading.