The Men’s Wearhouse, Inc. (MW)
Q4 2008 Earnings Call Transcript
March 11, 2009 5:00 p.m. ET

Executives

Ken Dennard – DRG&E
Neill P. Davis - Chief Financial Officer, Principal Financial Officer, Executive Vice President & Treasurer
George A. Zimmer - Chairman of the Board & Chief Executive Officer

Analysts

Brian Tunick – JPMorgan
Richard Jaffe – Stifel Nicolaus & Co.
Janet Kloppenburg – JJK Research
David Mann – Johnson Rice & Company, L.L.C.
Betty Chen – Wedbush Morgan Securities
Laura Champine – Cowen & Company
Susan Sansbury - Miller Tabak + Co., LLC

Presentation

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to The Men’s Wearhouse fourth quarter 2008 earnings conference call. During today’s presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. If you have a question, please press the “*” followed by the “1” on your touchtone phone. Please press “*0” for operator assistance at any time. If you are using speaker equipment, it may be necessary to pick up the handset before making your selection. This conference is being recorded today, Wednesday, March 11th of 2009. At this time, I’d like to turn the conference over to Mr. Ken Dennard with DRG&E. Please go ahead, sir.

Ken Dennard

Thanks Vince. Good afternoon and welcome to The Men''s Wearhouse fiscal 2008 fourth quarter and full year earnings call. As you know we’ll be making a number of forward-looking statements and all such statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions mentioned today due to a variety of factors that affect the company including the risks specified in the most recently filed Form 10-Q and Form 10-K.

Today’s call is copyrighted material to The Men''s Wearhouse and cannot be rebroadcast without our express written consent. I would like to turn the call over to Mr. Neill Davis, Executive Vice President and CFO of The Men''s Wearhouse. Neill.

Neill P. Davis

Thanks Ken and good afternoon everyone. I will first review our fourth quarter results and then turn the call to George Zimmer for an overview of our strategies as we move into fiscal year 2009. I will then conclude with an overview of our financial guidance before opening the call to your questions. Earlier today we reported GAAP diluted earnings per share for the quarter of $0.03 which significantly exceeded our mid-quarter updated guidance which was at the lower end of the break even to $0.18 loss range.

This favorable variance is a result of better than expected clothing sales and margin results at our Men’s Wearhouse and Moores retail stores, the impact of lower operating costs from initiatives implemented during the quarter, a net gain from non-operating sources realized in the final month of the quarter, and lastly from a lower effective tax rate.

Total company sales performance in the fourth quarter of $476.4 million declined 11% from last year’s fourth quarter of $535 million. Total clothing sales of $406.7 million declined 12.8% from last year’s fourth quarter of $466.2 million while tuxedo rental revenues of $35.8 million increased 3% over last year’s fourth quarter revenues of $34.8 million.

Our initial expectations going into the quarter called for a comparable store sales decline in the mid-single digit to low double digit range for our core Men’s Wearhouse stores which includes the MW Tux stores. Actual results for the quarter of a decline of 9.7% were better than our mid-quarter updated expectations largely due to increased customer traffic from our elevated promotional posture in January.

Comparable store sales expectations for K&G were initially targeted at a high single digit to low double digit decrease. Actual results were a decline of 10.7%. While we continue to be challenged in our men’s category we are maintaining positive trending in our ladies category. In Canada, comparable store sales results were a decline of 10.5%. This was better than expected at our mid-quarter update and is the result of an increase in customer traffic stemming from our promotional cadence during the month of January which was similar to the posture we had taken in our Men’s Wearhouse stores in the US.

Gross margin before occupancy costs decreased 294 basis points from 56.68% to 53.74%. Decreases in our clothing product margins as a percentage of related sales of 396 basis points were driven by a decrease in merchandise margins principally at our Men''s Wearhouse stores.

Our promotional pace accelerated in the quarter based on the positive response we were realizing from increased customer traffic which contributed to our better than expected earnings per share results for the quarter. We ended the quarter with domestic retail apparel inventory below last year by 9.9% which compares to a decline in related sales of 8.6% for the year and 9.4% for the quarter. I highlight this to remind you of the effectiveness of our merchants and managing their investments and inventory to support sales demand.

Occupancy costs decreased on a dollar basis by 1.9%, however, increased as a percentage of total net sales by 141 basis points moving from 13.91% up to 15.32% primarily due to the de-leveraging effect of reduced comparable store sales.