Why Shares of Men's Wearhouse Inc. Were Cut in Half in November

What: Shares of apparel retailer Men's Wearhouse tumbled during November, declining by 50%, according toS&P Capital IQdata. The company announced preliminary results for the third quarter, slashing its earnings guidance due to problems at Jos. A. Bank. Men's Wearhouse will report its full results before the market opens on Dec. 10.

So what: On Nov. 5, Men's Wearhouse put out a press releasedetailing its disappointing third-quarter results. Comparable-store sales at Jos. A. Bank, which the company acquired last year, fell by 14.6% during the quarter, driven by decreased traffic due to the decision to phase out the popular Buy-One-Get-Three promotional sales.

Men's Wearhouse now expects non-GAAP EPS to be between $0.46 and $0.51 for the third quarter, down from the company's previous guidance of $0.87. For the full year, Men's Wearhouse expects non-GAAP EPS between $1.75 and $2.00, well below previous guidance of $2.70 to $2.90. Comparable sales at Jos. A. Bank are expected to slump between 20% and 25% during the fourth quarter, as the negative effects of the change in promotional strategy continue to hurt sales.

With the stock now trading right around $20 per share, 10 times the high end of the company's earnings guidance, investors clearly aren't optimistic that Men's Wearhouse can fix the problems at Jos. A. Bank quickly.

Now what: With the Jos. A. Bank brand becoming well-known for the promotions that are now being phased out, it's unclear how long it will take for store traffic to rebound. Meanwhile, Men's Wearhouse's namesake stores are performing well, with comparable-store sales up 5.3% during the third quarter. Part of this increase could be the result of disenchanted Jos. A. Bank customers switching stores, so this high level of growth may not be sustainable as the Jos. A. Bank brand recovers.

In the long run, stopping what the company calls an "unsustainable promotional strategy" at Jos. A. Bank may turn out to be the right call, but at the moment, customers are abandoning the brand in droves. Investors are also abandoning the stock, not surprising given the scope of the company's guidance cut, and Men's Wearhouse will need to prove that its acquisition of Jos. A. Bank isn't the disaster it's shaping up to be.

The article Why Shares of Men's Wearhouse Inc. Were Cut in Half in November originally appeared on Fool.com.

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