By and  on March 7, 2012

The Men’s Wearhouse Inc. is reaping the rewards of a revitalized tailored-clothing business.

In 2011, the company “sold a record-breaking 3 million suits,” Doug Ewert, president and chief executive officer, told analysts during the company’s fourth-quarter earnings call on Wednesday, as it benefited from the popularity of a more modern fit with higher quarterly sales and a lower-than-expected loss.

“Roughly once every 10 years, a replenishment cycle is driven by a silhouette change in men’s suits,” he said. “Twenty years ago the cycle was driven by wide shouldered and double-breasted suits; 10 years later the three-button suit drove the replenishment cycle. Today we’re seeing a much trimmer shape drive replenishment. It can be described as modern fit and is influencing trimmer shirtings and neckwear as well. Though these trimmer looks are particularly attractive to a younger customer, influences are being seen across all demographics and sizes in the form of narrower lapels and pleatless pants.”

Ewert said sales of modern-fit product jumped 64 percent last year and now account for 19 percent of the business, or $309 million in revenue.

To capitalize on the trend, the company expects to shift more inventory into modern-fit products this year and will feature the merchandise in all marketing efforts, including a new television campaign that will begin airing later this month. “We’re focusing considerable resources toward maximizing this fashion cycle,” he said. “We have high expectations.”

Another growth area is big and tall, where sales rose 14 percent last year to $369 million, representing 23 percent of its “retail clothing product” sales, meaning revenues other than from tuxedos, alterations and corporate apparel. Even so, Ewert said a three-store test undertaken last year to open freestanding stores for this category is being abandoned.

“Through these test stores, we see customers responding to an expanded array of products and sizes,” he said, and the company will “utilize this learning in our full-line retail stores and forgo further expansion of big and tall stores.”

Ewert said the units in Houston and Dallas led to “cannibilization” from nearby full-line stores, while customers shopping in the New York City unit were requesting smaller sizes. The Manhattan store has already been converted to a regular Men’s Wearhouse unit.

Tuxedo rentals are also viewed as a continuing growth opportunity. Comp sales rose 16 percent over the past two years to reach $377 million, and the recently introduced Black by Vera Wang collection has performed above plan, Ewert said.

The company is planning to add to its store count going forward. Ewert expects to eventually expand to 750 stores in the U.S. and 125 in Canada over the next few years. As of Jan. 28, there were 607 Men’s Wearhouse stores and 117 Moores units.

Despite strong demand, the company remained in the red in the fourth quarter, although it pared its losses more than analysts had expected. In the three months ended Jan. 28, the Houston-based men’s specialty retailer registered a net loss of $3.8 million, or 7 cents a diluted share, down from a loss of $14.1 million, or 27 cents, in the comparable year-ago period. On an adjusted basis, eliminating nonrecurring charges, the loss came to 5 cents, below both Wall Street’s estimate of a 13-cent shortfall and the company’s earlier guidance of a loss ranging between 12 cents and 15 cents.

Total revenues were up 3.7 percent to $562.2 million from $542.1 million in the year-ago period. Men’s Wearhouse stores’ sales rose 9.8 percent to $341.5 million, more than compensating for declines of 0.8 percent and 1.7 percent at K&G and Moores, respectively, to $95.7 million and $65.2 million. Same-store sales at the two smaller divisions also declined, pulling back 2.1 percent and 0.2 percent, while the anchor brand’s expanded 9.3 percent. Gross margin, including the corporate apparel segment, rose to 40 percent of revenues from 37.2 percent.

Retail clothing product sales were up 5.5 percent, to $430.3 million, and tuxedo rentals up 13.3 percent to $43.4 million. The company said that transactions per store were down, but that decline was offset by both higher average unit selling prices in the U.S. and more units per transaction throughout the chain.

In preliminary guidance, the company projected first-quarter earnings of between 53 and 54 cents a diluted share and full-year EPS of $2.70 to $2.78. Sales are expected to grow 4 to 5 percent for the year and 2 to 2.5 percent in the quarter.

Results were reported after the close of the market Wednesday. Earlier in the day, shares closed at $40.20, up 88 cents, or 2.2 percent, after hitting a 52-week high of $40.50 in late afternoon trading.

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