- At Men''s Wearhouse stores and MW Tux, merchandise assortments will be updated and increased to include a fashion profile that will address a growing customer demographic in the 18 to 34 year old category.
- In addition to Wilke-Rodriguez, the private label, the firm will introduce two new designers, as this customer may be less affected during economic recessions because they are more fashion focused.
- From a marketing standpoint, there is a new generation of potential suit shoppers to introduce to the stores and the firm will be implementing marketing initiatives that are focused on driving younger customers.
- The firm plans to close with 600 Men''s Wearhouse stores and 525 MW Tux stores by the end of the year, with plans for more.
At MW Tux, in the last two months, the firm has participated in almost 500 bridal shows, and over the last 11 months, has integrated 500 MW Tux stores and 3,500 formerly after hour employees into the organization.
- It has modified tactics in lead generation and conversion, have changed systems and support, and rebranded the name of the stores from After Hours to MW Tux.
- Changes of this nature invariably result in a temporary loss of momentum because of the dynamics involved in integrating that many stores and people within a short period of time.
- While the benefits of SG&A savings are being recognized, rental revenues are increasing at a slower pace than anticipated, due to a reduced level of leads coming from the marketing partner, David’s Bridal.
- In partnership with the management team at David’s Bridal, the firm is making necessary changes to the bridal registry documentation generated at David’s Bridal to reestablish the volume of qualified leads.
- At K&G, the firm now has have well over 100 stores, 85% selling women’s wear.
- The unit experienced an 11% comparable store sales decline yet was able to retain mid-single-digit EBIT margins.
- While it is clear that an element of that under-performance is externally driven, the firm believes it can do a better job at the store level to reestablish a high-single-digit EBIT margin.
It has realigned accountability of operations by eliminating the divisional president position and retasking to existing personnel that have had extensive operating experience at The Men''s Wearhouse.
- In Canada, the firm gave notice to employees involved in the manufacturing facility in Montreal, Canada, that it will close that factory in mid 2008, one year earlier than originally anticipated.
- Costs to manufacture product in Canada are significantly impacted due to the improving Canadian dollar and the inability to compete with the lower costs in other parts of the world.
- The firm is currently planning on offering severance packages to all employees involved in the plant closing, including job training, even to employees who are part of a collective bargaining agreement, costing $8.5 million.
Update on Initiatives:
- Twin Hill, the B2B uniform program, while being the smallest business initiative in terms of revenue, is the fastest growing profit initiative.
- Although this pace of growth is difficult to replicate and sustain in the near-term, though an annualized growth rate in the 25% plus range is achievable.
- MW Cleaners, another small and developing business unit addressing the retail dry cleaning market, continues to realize efficiency gains as the firm explores the ability to leverage this environmentally friendly business and consider regional growth potential.
Fiscal 2008 Outlook:
- For the full year, the firm is currently estimating comparable store sales for the Men''s Wearhouse brand to decrease in the low to mid single digit range; for K&G to decrease in the high single digit range; and Moore’s to essentially be flat.
- Comparable store sales for the first quarter for The Men''s Wearhouse brand are expected to decrease in the mid single digit range; for K&G to decrease in the low teens, and Moore’s to decrease in the low single digits.
For the second quarter of the year, The Men''s Wearhouse brand to decrease in the low to mid single digit range; for K&G to continue experiencing pressure and decreasing in the low teens; and Moore’s to increase in the low single digit range.
- Fixed capital investments is expected in the range of $70 million to $75 million in support of a store upgrade and expansion program involving the opening of 51 stores.
- EPS, excluding the closing of the Golden Brand facility, will be in a range of 20 cents to 24 cents in the first quarter, 80 cents to 86 cents in the second quarter and $1.90 to $2.10 for the full year.
Key questions and answers from the fourth quarter earnings call conducted by The Men’s Wearhouse Inc. on March 12, 2008.
Lauren Cooks Levitan (Cowen and Company): What would be the drivers of much bigger erosion in EBIT margin for the legacy business?
Neill P. Davis: The only other dynamic that is at play here is the degree of same-store sale decline and the effects that it is having on the expense deleverage. We are spending more money in advertising, which is different from what was done in the prior cycle. When we had a compression in same-store sales, we retreated from advertising. We are choosing a different path this time.
Richard E. Jaffe (Stifel Nicolaus): Comment on the young man’s initiative, either in broad terms or merchandise categories?
George A. Zimmer: A brand other than Wilke-Rodriguez, our own, is Jones New York City is the young men’s brand. Young men’s is a flat-front pants, that is one of the significant changes from the clothing.
Richard E. Jaffe (Stifel Nicolaus): Comment on the outlook for K&G and initiatives to get that business back on track?
George A. Zimmer: We have hired a design team. We have actually let the president of the division go and replace him. We are bringing a new chief merchandising officer. We are bringing in more designer and famous brands, particularly in our women’s wear section.
Betty Chen (Wedbush Morgan Securities): Can you talk about the marketing spend that you plan on making?
George A. Zimmer: For the first time in many years, we are actually going to raise the percentage on a consolidated basis that we spend in advertising. We are not going to spend more at K&G specifically. We are spending more at Men''s Wearhouse and Men''s Wearhouse Tux, and in our Internet advertising targeted to the younger customer.
David M. Mann (Johnson Rice & Company): Any views on what happened in Canada and why you would expect that business to rebound so quickly?
George A. Zimmer: The precipitous drop in Canada, which was a shock to everybody concerned, must have been triggered to some degree by a general sense in Canada that as the Canadian dollar strengthened and retail prices were not adjusted, they sort of rebelled against shopping in retail stores and our business was stronger, meaning Men''s Wearhouse business, along the northern tier as Canadians came into the United States.
David M. Mann (Johnson Rice & Company): Comment on the higher inventory levels at the Men''s Wearhouse business and why that is not a cause for concern for future margins?
Neill P. Davis: What you are seeing is the flow of goods coming in and hitting our warehouse in anticipation of our spring selling season.
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