The management expressed satisfaction with the market presence of approximately 1,300 retail locations.
-The company will not be adding to this portfolio next year.
- However, the management is positioned to opportunistically make additions where they make sense.
- Resultantly, the company expects a 50% reduction in capital spending from the levels estimated for fiscal 2008.
The company reported weighted average diluted outstanding shares of 52 million, or 3.3%, or 1.8 million share less than the third quarter of the prior year.
- The management did not repurchase any shares in the quarter.
- The company continues to have available about $44 million of remaining authorization.
The company experienced a much worse-than-expected sales performance in the third quarter heavily weighed down by the month of October.
- The company embarked on a strategy going into the year to become more aggressive.
- Beginning November, the management initiated promotional strategies for the fall season with a buy one, get one free offer for select designer suit brands.
- Whilst initial results are encouraging, the sustainability is not clear, particularly given the economic environment.
The management reported that the fourth and first quarters of the fiscal year are the seasonal low points for tuxedo rental revenues.
- However, the infrastructure supporting the rental business is primarily fixed and the company experienced significant expense deleverage in Q4 and to a lesser degree in Q1 from the seasonal effects of the rental business.
- The drag on profitability is estimated to impact fourth quarter diluted earnings per share by approximately 20 cents.
The management has, particularly with the Canadian dollar, adjusted the forecast in Canada to reflect the effects of a weakening Canadian dollar.
- The current outlook results in a 17.1% decrease in the exchange rate from the prior year fourth quarter.
- The impact of this year’s fourth quarter is approximately 3 cents diluted earnings per share.
The management has taken proactive steps towards increasing sales through a more aggressive pricing strategy.
- The company is currently running a buy one, get one free campaign.
- The management has also proactively begun to reduce costs and plan for an expected difficult Christmas and year 2009.
- The management expects that over the next two years, significant free cash flows and liquidity will be realized.
- The company noted its ability to reduce the CapEx in 2009 by 50% to about $40 million and in 2010 if necessary, to $20 million.
- An estimated amount of $100 million in cash is expected to be created.
The management reported that the company’s success is in part due to selling conventional clothing unconventionally.
- The company’s 500 stores that were part of the after-hours acquisition are another opportunity to enhance sales success.
- The company is also focusing on a younger demographic, the millennials, the 70 million consumers who like shopping and are more interested in brands than the baby boomers.
Tuxedo rental now represents 17% of the company’s total revenue.
- The management is of the opinion that industry fundamentals in the rental business remain solid.
- There key to tuxedo rental is the company’s mutually beneficial relationship with David’s Bridal.
The new leadership at K&G has now begun implementing changes in product assortment and mix as well as store redesigns.
- These efforts are designed to recapture the interest and dollar of K&G''s high frequency visit customer.
- The management advised that this is a multi-year process and remains focused on managing to the levels of business expected at K&G in terms of capital outlays and operating costs.
At MW Cleaners, the management continues to explore new partnership and leverage opportunities while concentrating on generating cash from this division.
- Twin Hill, the direct-to-business corporate apparel division, has experienced rapid growth from a small base.
- Some of the current and potential customers are merging or evaluating their uniform strategies.
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