The Men’s Wearhouse Inc. is keeping the promotional pedal to the metal for holiday, putting the bottom line at risk.
In posting a 35 percent increase in third-quarter earnings, the 1,274-unit, Houston-based retailer said it expects business to remain challenging in the fourth quarter and will answer that with continued aggressive promotions. It also said Tuesday it anticipates a fourth-quarter loss of 15 to 19 cents, versus analysts’ earlier expectations of a 1-cent profit, leading shares down sharply in after-hours trading.
On its analyst conference call after the market closed on Tuesday, chief executive officer George Zimmer said: “Until we have clear signs that the consumer is spending freely without promotion, we are guaranteeing that we’ll get our business by marketing heavily and promoting heavily.”
Over the past year, he said, the company has had success with its buy-one-get-one-free and buy-one-get-the-second-one-for-$100 promotions. In fact, he revealed, the latter actually outperformed the former, a phenomenon he attributed to the enthusiasm of the company’s employees for the second option.
While Zimmer said he is expecting 2010 to be “not quite as promotional” as this year, there are no plans to return to regular-price selling anytime soon. Cutting back on promotions could impact the company’s market share, its primary focus now and in the future.
“In the final analysis, it will be a multiyear process through continued market share gains, gross margin expansion and expense leverage to return to our historical double-digit operating margin profile,” Zimmer said. “Additionally, if comps become positive, the time frame for achieving double-digit EBIT [earnings before interest and taxes] will shorten.”
In the third quarter, the company overcame declines in gross margin and clothing sales to post a nearly 35 percent increase in third-quarter earnings, eclipsing its own estimates and those of Wall Street.
In the period ended Oct. 31, the company generated net income of $19.7 million, or 37 cents a diluted share, higher than the analysts’ consensus estimate of 33 cents and its own guidance for earnings per share of 27 to 30 cents. In the year-ago quarter, profits hit $14.6 million, or 28 cents, including a 2-cent charge to cover the cost of closing a Canadian production facility.
Sales rose 0.5 percent to $462 million from $459.7 million. Increases in tuxedo rentals and alterations more than compensated for a 0.1 percent decline, to $333.9 million, in its largest business, clothing product. Same-store sales were down 0.2 percent at Men’s Wearhouse stores and 1.1 percent at K&G stores, but up 1.9 percent at the Moores unit in Canada, calculated in local currency.
Gross margin fell back to 43.9 percent of sales from 44.1 percent a year ago.
In the fourth quarter, sales are expected to decline in the low-single-digit range overall and at the MW division. The sales guidance and projection of a loss sent shares down 16.4 percent, to $18.35, in after-hours trading.
Turning to e-commerce, Zimmer said site traffic and business is “surging after a software stumble earlier this year.” He took responsibility for the company’s late entry into the Internet marketing and social networking business but in 2010, he said, the Web site should “do more volume than any [single] Men’s Wearhouse store, close to $10 million.”
For the nine months, net income grew 12.3 percent to $64.4 million, or $1.22 a diluted share, while total revenues tracked downward 2.9 percent to $1.45 billion.
Taking the final spot on the mens’ portion of New York Fashion Week calendar next month will be none other than @tomford. Though he’s shown his men’s wear in New York in the past, this will mark the first time the designer has shown his men’s collection alone during New York Fashion Week: Men’s. His runway show will debut on February 6 at the Park Avenue Armory. #wwdfashion
London-based couture house @ralphandrusso has certainly been in the spotlight, having its dresses worn by @beyonce, Angelina Jolie, Meghan Markle in her engagement photos and more. For couture, Tamara Ralph focused on ornamentation — think: feathers with chain mail, jet embroidery and clusters of pearls and crystals. See the rest of the collection on WWD.com #wwdfashion #couture (📷: @giovanni_giannoni_photo)
Minnie Mouse celebrated her 90th birthday by getting her own star on the Hollywood Walk of Fame. For her celebratory luncheon, @coach’s creative director @stuartvevers dressed her in a custom made prairie dress, complete with Vever’s take on the polka dot – black sequined versions – under a cropped motorcycle jacket. The designer also put his own mark on Minnie’s classic red shoes, infusing the color with sparkles and adding some Coach crystals. “We chose colors that were very Minnie and also represented quintessential Coach elements,” said Vevers. #wwdfashion #nationalpolkadotday (📷: George Chinsee)
@nickjonas is unveiling his first-ever apparel collection through a partnership with John Varvatos. The limited-edition capsule, which makes its debut in spring, also marks the first time the designer has collaborated with anyone on a line. “The process in working with Nick is amazing. It’s inspiring to be around someone who is not only connected with the trade that they do, but also with what’s happening in the environment around him, and how that connects to what we do with style,” said Varvatos. (RG: @johnvarvatos) #wwdfashion
@margotrobbie steps out onto the red carpet wearing @miumiu. The actress is nominated for “Outstanding Performance by a Female Actor in a Leading Role” in “I, Tonya” at the #SagAwards. (📷: Stewart Cook) #wwdfashion
For @massimogiorgetti of @msgm, the Nineties are his favorite decade. “They had a huge impact on my personal growth. What I like of the Nineties is that they are not so precise in terms of style as other decades…there was actually a bit of everything,” he said. As seen on MSGM’s Spring 2018 show: tie-dye and a bit of grunge, two styles that are synonymous with the decade #wwdfashion #wwddecades (📷: @kukukuba)