Men's Wearhouse jumps on K&G plans

Associated Press

NEW YORK (AP) -- Shares of Men's Wearhouse surged Thursday after the retailer announced plans to explore the possible sale of its K&G unit.

THE SPARK: Late Wednesday, Men's Wearhouse Inc. disclosed that it was exploring the possible K&G sale and that it had hired Jefferies & Co. to evaluate strategic alternatives for the operations.

K&G stores sell men's suits and accessories, with many of the stores also carrying a full selection of women's clothing.

Men's Wearhouse said that it believes that its strength lies primarily in its namesake and Moores men's brands.

THE BACKGROUND: K&G is one of the Houston company's weaker performing units. Men's Wearhouse is trying to refine its business due to soft sales, as consumers have become more selective about where they spend money.

Aside from the K&G announcement, Men's Wearhouse reported Wednesday that it lost 7 cents per share in its fiscal fourth quarter. Revenue climbed 8 percent to $608.4 million. Analysts polled by FactSet predicted a loss of 5 cents per share on revenue of $610 million.

THE ANALYSIS: Richard Jaffe of Stifel Nicolaus said in a client note that selling the K&G division would result in better company profitability and an increase in its stock price.

The analyst said that K&G had weak sales in the fourth quarter due to ineffective promotions and an unappealing marketing campaign. Jaffe said that K&G's core customer is usually more sensitive to economic conditions. This sensitivity can limit their spending.

SHARE ACTION: Shares of Men's Wearhouse rose $5.78, or 19.9 percent, to $34.85 in midday trading. Over the past year, the stock has traded in a range of $25.97 to $40.67. The shares are down 7 percent for the year to date.