This summary is based on the fourth quarter fiscal 2007 earnings call conducted by The Men’s Wearhouse Inc. (MW) on March 12, 2008.
Management:
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DRG&E: Ken Dennard
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Chairman of the Board, Chief Executive Officer: George A. Zimmer
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Chief Financial Officer, Principal Financial Officer, Executive Vice President, Treasurer: Neill P. Davis
Key Investors Issues
- Earnings dropped 71% from $52.3 million or 99 cents in the prior year to $14.8 million or 28 cents a share.
- Sales decreased 1.9% to $535 million from $556.8 million in 2006.
- The firm repurchased 1.2 million shares at a value of $27.7 million, or the equivalent of $23 per share.
Full Year Highlights:
- Sales increased 12% to $2.1 billion.
- Earnings dropped marginally to $147 million or $2.76 a share from $148.6 million or $2.80 in the prior year.
- Operating income was $228.7 million compared to $223.9 million in 2006.
Fourth Quarter Highlights
Earnings of $14.8 million or 28 cents was 71.7% lower than $52.3 million or 99 cents a share realised in the prior year as weak comparable store sales largely driven by weak traffic levels, was the key driver.
- The principal drivers to the upside from the mid-quarter EPS update stem from modestly better than expected sales results in January, lower cost of clothing sales, lower general and administrative costs, and a lower effective tax rate.
- Deleverage was amplified by the seasonality of the tuxedo rental business and the acquisition of the tuxedo rental operations of After Hours earlier in the year.
- Results also include 2 cents a share dilutive impact for costs associated with the relocation of the company’s corporate offices in Houston as well as the effect of current year adoption of accounting for sabbatical leave and other similar benefits.
- Comparability was impacted by the additional week in the retail calendar that generated 8 cents in diluted earnings per share.
Total sales decreased 1.9% to $535 million from $556.8 million in the prior year as tuxedo rental revenues, representing 6.5% of total sales, increased 141.9%, largely influenced by the addition of After Hours.
- Comparable store sales decreased 8.6% for the United States based stores, which was below the initial expectations of negative low single digit, a reflection of weaker traffic.
- Comparable store sales decreased 7.3% for the Canadian based stores and was below the initial guidance of flat to up 2% and also impacted by reduced traffic trends.
- Gross margin as a percentage of sales decreased 183 basis points from 44.6% to 42.77%.
- Continued improvements in lowering the cost of clothing sales, effective inventory management within the context of weaker consumer traffic trends, and continued growth of tuxedo rentals mitigated the impact of occupancy deleverage.
Selling, general, and administrative expenses as a percent of sales increased 728 basis points from 31.46% to 38.74%, due to the comparable store sales decreases in the U.S. and Canada.
- The firm repurchased 1.2 million shares at a value of $27.7 million, or the equivalent of $23 per share.
- Retail inventories on a per store basis at The Men''s Wearhouse stores increased 3.6%, K&G decreased 8.9%, and Moore’s in Canadian dollars decreased 3.7% over the prior year.
- Inventories at the Twin Hill business unit increased 79% over the prior year and relate to the ramp-up of a new uniform program for U.S. Airways’ 16,000 employees.
Macroeconomic Perspectives:
- The firm is anticipating a difficult economy in the near-term and is also preparing for the possibility of a longer period of weaker economic conditions.
- The average consumer is feeling economic pressure as they experience rising prices in fuel and basic staples, the effects of declining home prices, which for most individuals represent their single largest asset.
- In difficult economic environments, men are generally the first to reduce spending, thus the firm is planning for a difficult year and anticipate significant reductions in discretionary spending for tailored clothing.
Operational Highlights:
- With the addition of After Hours stores, which are now operating as MW Tux stores, on an annualized basis, tuxedo rentals are expected to account for 16% of consolidated revenues.
- Geographically, the firm continues to experience a heightened level of weakness in California and Florida, although broad-based weakness to varying degrees has developed across all markets.
- Highlights of the business at Men''s Wearhouse and Moore’s indicate a decrease in average ticket only slightly below the prior period, primarily a function of selling fewer tailored clothing units.
Management remains focused on the fundamentals of protecting and enhancing margins while keeping inventory current and compelling.
- K&G, while also experiencing traffic declines, is also being impacted by lower average tickets.
- The firm will continue to spend on employee training, benefits, and incentives and will increase marketing to not only bring in new customers but to strengthen brands as well.
Business Unit Performance:
