Men's Wearhouse Reports Fiscal 2013 Second Quarter Results

FREMONT, Calif., Sept. 11, 2013 /PRNewswire/ -- The Men's Wearhouse (NYSE: MW) today announced its consolidated financial results for the fiscal second quarter ended August 3, 2013.  As discussed further below, the 2013 second quarter GAAP diluted EPS of $0.85 was less than the prior year mainly because of one-time charges that reduced EPS by $0.16 and an estimated $0.10 EPS reduction caused by an Easter related shift in quarterly tuxedo rental revenues.   

Doug Ewert, Men's Wearhouse president and chief executive officer, commented, "Retail clothing sales during the second quarter were below our internal plan as we experienced a decline in customer traffic compared to last year's second quarter.  We believe this is primarily due to macro issues affecting the apparel retailing space.

"Despite the difficult economic climate, we remain committed to our operating and capital allocation plans that were laid out earlier this year.  Over the past six months we have improved financial flexibility, purchased the American designer brand Joseph Abboud® and its U.S. manufacturing operations, and repurchased approximately $152 million of our shares; and we continue to evaluate strategic alternatives for our K&G operations.   

"Along with our store growth and margin expansion initiatives, we believe these strategic and deliberate actions better position the Company for growth and will continue to unlock value for our shareholders into 2014 and beyond," said Ewert.

SECOND QUARTER STRATEGIC REVIEW

In July 2013, the Company signed a definitive agreement to acquire JA Holding, Inc., the parent company of the American clothing brand, Joseph Abboud®, for approximately $97.5 million in cash consideration, subject to certain adjustments.  The transaction closed on August 6, 2013 and was funded with the $100.0 million term loan available under our credit facility.

Also in July 2013, the Company entered into an accelerated share repurchase agreement ("ASR") with JPMorgan Chase Bank, NA, to repurchase $100.0 million of the Company's common shares and received an initial delivery of 2,197,518 common shares, which is approximately 85% of the number of shares expected to be repurchased in connection with this transaction.  The ASR is expected to be completed no later than the fourth quarter of 2013.  All shares repurchased under the ASR will be retired.  The remaining balance available under the Board's $200.0 million March 2013 authorization is $48.0 million.

SECOND QUARTER CONSOLIDATED RESULTS REVIEW

Total net sales for the fiscal 2013 second quarter decreased 2.3% or $15.0 million to $647.3 million from $662.3 million for the same prior year period.  Retail segment sales for the quarter decreased by 1.9% or $11.2 million and corporate apparel sales decreased by 6.6% or $3.8 million as compared to the prior year quarter.

The consolidated total gross margin was down $11.5 million or 3.6% with the total gross margin rate decreasing 65 basis points primarily because of the shift in tuxedo revenues and the deleveraging of occupancy costs.  The retail segment total gross margin was down 3.4% and the corporate apparel gross margin decreased 6.1%. 

Adjusted SG&A expenses increased by $0.9 million or 0.4% primarily due to payroll related costs, particularly increased medical benefit costs.  Adjusted SG&A expenses exclude $2.9 million in costs related primarily to the JA Holding, Inc. acquisition and separation costs associated with a former executive.  Also excluded is a $9.5 million non-cash goodwill impairment charge related to K&G.  These charges of $12.4 million ($8.0 million after tax) reduced second quarter diluted EPS by $0.16.

GAAP net earnings for the fiscal 2013 second quarter were $42.9 million, or $0.85 diluted earnings per share.  Adjusted net earnings[1] for the fiscal 2013 second quarter were $51.0 million, or $1.01 adjusted diluted earnings per share compared to net earnings of $59.4 million, or $1.15 diluted earnings per share last year.  The Company estimates that approximately $0.10 of the comparable decrease is attributable to a shift of tuxedo prom season rentals to the first quarter caused by an earlier Easter.

SECOND QUARTER SALES REVIEW

The table that follows is a summary of net sales for fiscal 2013 second quarter and year-to-date.  The dollars shown are U.S. dollars in millions and due to rounded numbers may not sum.  The Moores comparable store sales change is based on the Canadian dollar.  Comparable sales exclude the net sales of a store for any month of one period if the store was not open throughout the same month of the prior period and include e-commerce net sales, beginning in fiscal 2013. 

Because fiscal 2012 was a 53 week year, comparable store sales for the current year are shown on a trailing 52 week basis, comparing the most relevant time periods, as well as on a fiscal period basis.  The current quarter fiscal period basis is lower than the trailing basis comparison primarily due to the calendar shift of prom tuxedo rental revenues into the fiscal first quarter.  There was an offsetting favorable calendar shift primarily in the first quarter resulting in a mostly neutral full year impact.

Net sales at core flagship brand Men's Wearhouse stores, which represented 66% of total second quarter sales were down 0.7% from last year's second quarter sales while comparable store sales increased 0.7%, below internal expectations.  On a comparable basis an increase in clothing product average unit retails more than offset decreases in average transactions per store and units sold per transaction. The higher margin tuxedo rental revenues comparable store sales increased 0.4% in the second quarter of 2013. 

Moores, the Canadian retail brand, was 12% of the total second quarter sales and had a comparable store sales decrease of 4.9% due mainly to decreased average transactions per store and units sold per transaction that more than offset increased average unit retails.  K&G was 13% of the Company's total second quarter sales with a comparable store sales decrease of 3.0% with lower average transactions per store and average unit retails that more than offset increased units sold per transaction.  These results for Moores and K&G were slightly favorable to our internal plans.  The Corporate Apparel segment, which represented 8% of total second quarter sales, had a sales decrease of 6.6% due mainly to an expected lower level of customer-directed new uniform rollouts in the UK. 

2013 GUIDANCE

While the Company continues to feel confident about its merchandising and operating strategies, it has become increasingly concerned about the current macro trends in the apparel industry.  Therefore, the Company is lowering its comp store growth assumptions by approximately 2% at Men's Wearhouse and Moores from the previous guidance, given on June 12, 2013, resulting in a full year expectation of adjusted earnings per share of $2.40 to $2.50.  The Company's revised guidance excludes deal and integration costs associated with the JA Holding, Inc. acquisition, separation costs associated with a former executive and the non-cash goodwill impairment charge related to K&G mentioned earlier.

"We are being cautious as we face macro-economic headwinds.  However, we believe our operating and capital allocation plans, our margin enhancement strategies, including new store openings and the expansion of exclusive brands, and our new omni-channel marketing initiatives introduced in 2013 position us to grow market share as we manage through this," Ewert concluded. 

CONFERENCE CALL AND WEBCAST INFORMATION

At 9:00 a.m. Eastern time on Thursday, September 12, 2013, Company management will host a conference call and real time webcast to review fiscal 2013 second quarter results and its outlook for fiscal 2013.

To access the conference call, dial 480-629-9692.  To access the live webcast presentation, visit the Investor Relations section of the Company's website at www.menswearhouse.com.  A telephonic replay will be available through September 19, 2013 by calling 303-590-3030 and entering the access code of 4634827#, or a webcast archive will be available free on the website for approximately 90 days.

Founded in 1973, Men's Wearhouse is one of North America's largest specialty retailers of men's apparel with 1,137 stores.  The Men's Wearhouse, Moores and K&G stores carry a full selection of suits, sport coats, furnishings and accessories in exclusive and non-exclusive merchandise brands and Men's Wearhouse and Tux stores carry a limited selection.  Most K&G stores carry a full selection of women's apparel.  Tuxedo rentals are available in the Men's Wearhouse, Moores and Men's Wearhouse and Tux stores.  Additionally, Men's Wearhouse operates a global corporate apparel and workwear group consisting of Twin Hill in the United States and Dimensions, Alexandra and Yaffy in the United Kingdom. 

This press release contains forward-looking information.  The forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements may be significantly impacted by various factors, including sensitivity to economic conditions and consumer confidence, possibility of limited ability to expand Men's Wearhouse stores, possibility that certain of our expansion strategies may present greater risks, changes in foreign currency rates and other factors described in the Company's annual report on Form 10-K for the fiscal year ended February 2, 2013 and Forms 10-Q.  For additional information on Men's Wearhouse, please visit the Company's websites at www.menswearhouse.com, www.mooresclothing.com, www.kgstores.com, www.twinhill.com, www.dimensions.co.uk and www.alexandra.co.uk. 

[1] Adjusted net earnings exclude $2.9 million ($1.9 million after tax or $0.04 per diluted share) in costs related primarily to the JA Holding, Inc. acquisition and separation costs associated with a former executive. Also excluded is a $9.5 million ($6.1 million after tax or $0.12 per diluted share) non-cash goodwill impairment charge related to K&G.

SOURCE The Men's Wearhouse