- The management anticipates comparable store retail apparel sales to be down in the range of 6% to 10%.
- The lower end of that range is based on realization of trends observed in the fourth quarter of fiscal 2008.
- The strong end of the range is predicated on continued success in merchandising and marketing initiatives.
- The company expects a 7% to 9% increase in the tuxedo rental business for the first half of the year.
- Gross margins for the first and second quarter are expected to be below the prior year.
- The management anticipates occupancy costs to decline in the low single digit range for the first half of the year in dollar terms.
- Selling, general and administrative expenses before marketing expenses for the first half are expected to decline in the 7% to 9% range on a reported basis.
- Net interest expense is expected to decline as management increases cash reserves from continued gains in free cash flow.
- The effective tax rate for the first half is expected at 38% up from the prior year comparable period of 37%.
- Depreciation and amortization is estimated at $85 million for the year, $43 million of which for the first half.

Key questions and answers from the fourth quarter fiscal 2008 earnings call conducted by The Men’s Wearhouse Inc. (MW) on March 11, 2009.

Brian J. Tunick (JP Morgan): What’s the right amount of time that the BOGO event will go on in the first half of the year?

George A. Zimmer: The BOGO event is being reconstituted so that it can run indefinitely. We’re making 30 second commercials which have a nice story with the BOGO message being just a part of the overall message. We’re actually planning on running this on a regular basis.

Brian J. Tunick (JP Morgan): Can you more detail on the low single digit decrease in the occupancy side and should we expect that to continue in the back half?

Neill P. Davis: We do expect a continuation of occupancy dollars to decline in the back half but remember that as we get into fourth quarter we’ll be beginning to anniversary some of our initiatives to lower that cost.

Brian J. Tunick (JP Morgan): If you become a BOGO business that should have a permanent impairment on the merchandise margins. Is that how we should think about it or are you buying different now?

George A. Zimmer: We’re anticipating that there will be some merchandise margin degradation but it’s all a function of volume and right now we’re hopeful.

Janet Kloppenberg (JJK Research): What’s happening on the gross margin line in terms of your negotiation with vendors? You expect the rate of decline of gross margin to moderate as we move to the back half. Given the environment and a recent bankruptcy filing by one of your competitors, are you able to secure lower prices on like product or if you’re changing your mix and you’re selling inexpensive suits but perhaps the quality level is going down? What are the expectations for a normalized gross margin rate going forward?

George A. Zimmer: The quality is not going down. If anything the quality is going up. We’d rather not mention brand names specifically on the call but we have a suit now in our New York stores that we know would be very attractive to people in the financial community and we are always looking for brands and have reason to believe that in difficult business conditions our chances improve to get additional brands.
We are not moving down in quality. If anything we’re going to move up in quality and try to promote our everyday low price as we’re $100 less than the regular price at a department store and we throw in a second suit for free.

David M. Mann (Johnson Rice & Company, L.L.C.): In terms of the stand alone tux stores, you’re talking about rebranding them and you ran a test and it sounds like that went well. Can you talk a bit more about how those stores did in the test and the performance of regular merchandise being sold in those stores?

George A. Zimmer: The test results were good but not great, better than fair. It was the slowest time of the year for the tuxedo rentals as you heard our fourth quarter total rental business was about $35 million. It’s a very small traffic piece but the average store did about $1,000 a week in retail product which extrapolates to $50,000 a year or more if you assume that you’ll do based on busier seasonality.
It also was incomplete in merchandise so that we really do believe that the target of $100,000 a store is a realistic target.

David M. Mann (Johnson Rice & Company, L.L.C.): Regarding the bankruptcy of S&K, can you give a sense on how those closings have impacted you and how much of their sales would you expect to capture?

George A. Zimmer: Unfortunately the stores that they closed were doing individually very little business so it’s very hard in a short period of time to notice a significant difference. Stepping back we don’t know exactly what they’ll end up with in reorganization or if there will be any reorganization but we do believe that between K&G and Men''s Wearhouse, we would get more of the S&K business than anybody else.

Betty Chen (Wedbush Morgan Securities): Can you give us a sense of how much the marketing budget could increase in the first half and if we should use that as a barometer for the back half of the year?

Neill P. Davis: On the marketing spend it will be a single digit number. As we move into the first half of the year we’ll be doing a lot of things that are new and the cadence at which we will do those may be different but thinking in terms of a single digit number would be appropriate and helpful for you in your modeling. As it relates to back half of the year spending we would realize the same rate of reduction at that time frame as the first half.
I would tell you that it will be less as we begin to anniversary clearly the fourth quarter and quite frankly we’ll assess our results of the business from the first half of the year and then make some decisions as to what might or might not be done on the back half. But clearly where we stand today it will be at a less of a run rate reduction in the back half than the first half and it’s because we begin to anniversary that.

Laura Champine (Cowen & Company): I’m surprised to see the growth in the tux rental business given the kind of overall environment that we’re in. What is driving that? Is that a massive share gain or is the tuxedo rental industry holding up that much better than consumer spending overall?

George A. Zimmer: It’s probably some of both. The bridal industry does hold up better than the men’s tailored clothing industry but I also think that many of the investments in infrastructure and marketing that we initiated last year are paying increased dividends this year. We’re very optimistic about not just this year but the long term trend.

David M. Mann (Johnson Rice & Company, L.L.C.): You were hopeful about K&G turning the corner. Could you just give a sense on why that would be?

George A. Zimmer: There are three reasons. Number one as we said the sector itself is the sector that’s least negatively impacted by the current reality. But number two we are extremely pleased with Mary Beth Blake, our new President who has been with the company not quite a year and so the impact that she’s making is only just being felt at the merchandise level. We’re very optimistic.
Number three is it is manifesting in positive women’s comps which actually are one of the few positive numbers that we see around here right now. We’re hopeful that the marketing campaign which we’ve hired a New York agency to manage and produce will work but that’s still a hope.