The Men''s Wearhouse, Inc. (MW: chart)
Q3 2008 Earnings Call Transcript
November 19, 2008 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 and Chief Executive Officer

Analysts

Richard Jaffe - Stifel Nicolaus
Betty Chen - Wedbush Morgan
Janet Kloppenburg - JJK Research
Brian Tunick - JPMorgan
David Mann - Johnson Rice

Presentation

Operator

Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to The Men''s Wearhouse third 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 do have a question, please press the “*” followed by the “1” on your pushbutton phone. If anyone needs operator assistance during the conference, please press the “*” followed by the “0”. If you are using speaker equipment today, please lift up the handset before pressing the numbers. As a reminder, this conference is being recorded today, Wednesday, November 19th of 2008. At this time, I would like to turn the conference over to Mr. Ken Dennard with DRG&E. Please go ahead, sir.

Ken Dennard

Thanks Vince and good afternoon everyone and welcome to The Men''s Wearhouse third quarter 2008 earnings conference call. As you know, management will 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 Forms 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.

And now I would like to turn the call over to Mr. Neill Davis, Executive Vice President and Chief Financial Officer of The Men''s Wearhouse. Neill.

Neill P. Davis

Thanks Ken and good afternoon everyone. We have a lot to cover today. I will first review our third quarter results by operating division, followed by an update of the company’s liquidity and balance sheet condition, including an overview of our strategies concerning capital allocation and deployment. I will conclude with an update to our fourth quarter and fiscal 2008 outlook and then turn the call to George Zimmer before we open the call to your questions.

Earlier today we reported adjusted diluted earnings per share for the quarter of $0.30, which exceeds our $0.24 to $0.28 mid-quarter updated guidance range and compares to the prior year quarter of $0.69. Total company sales performance in the third quarter of $459.7 million declined 10.2% from last year’s third quarter of $512.1 million. Total clothing sales of $334.4 million declined 12.9% from last year’s third quarter of $384 million, while tuxedo rental revenues of $96.5 million was slightly higher than last year’s third quarter revenues of $96.1 million.

Our initial expectations going into the quarter call for a comparable store sales decline in the high single-digit range for our core Men''s Wearhouse stores, which includes the MW Tux stores. However, once the economic downturn was magnified by the credit crisis, it was clear that our initial expectations were no longer realistic and we reduced our guidance in the mid-quarter update.

Our actual results for the quarter then were of a comparable store sales decline of 12.1%, due primarily to lower traffic levels. These declines in comparable store sales related solely to our retail apparel business. The silver lining to the quarter’s results is reflected in our better-than-expected tuxedo rental revenues. As a reminder, we had planned for a low single-digit decrease in this business.

Comparable store sales expectations for K&G were initially targeted at a mid-single-digit decrease. Actual results were a decline of 13%, due mostly to reduced store traffic. While we continue to be challenged at our men’s category, we are seeing positive trending in several of our ladies categories.

In Canada, comparable store sales results declined 4.9% versus an initial expectation of a low single-digit decrease.

Gross margin before occupancy costs decreased 80 basis points from 60.8% to 60%. Decreases in our clothing product margins as a percentage of related sales of 154 basis points were driven by deleverage of procurement and distribution costs and a decrease in merchandise margins principally at our K&G stores as we continue the process of modifying our assortment strategies and in doing so are realizing higher markdown rates. These decreases were offset by a higher percentage of total sales coming from our higher margin tuxedo rental business. Actual gross margin results before occupancy were higher than our initial expectations as a percentage of sales contributing to our better-than-expected earnings per share results for the quarter.

We ended the quarter with retail apparel inventory below last year by 6.8% in total, down 8.7% on a per store basis and down 9.8% on a per square foot basis.