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Men’s Wearhouse Q1 Earnings Drop

Second-quarter guidance below Wall Street’s estimates.

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Appeared In
Special Issue
Men'sWeek issue 06/07/2012

Corrective action is ahead for K&G.

Smarting after negative comparable-store sales at the The Men’s Wearhouse Inc.’s off-price unit unexpectedly pulled down the company’s first-quarter profits, Douglas Ewert, MW’s president and chief executive officer, said on the firm’s earnings call that management is “continuing to look at our merchandising and marketing at K&G” but declined to discuss specifics.

That conviction — and reluctance to delve into details — was echoed by George Zimmer, the company’s founder and chairman, who wasn’t scheduled to be part of the call. “I’ve been instructed not to talk in detail, but we understand we need to do something at K&G,” he chimed in as Ewert concluded his response to an analyst’s question. “We have taken the necessary action and will talk about it on our next call.”

The Men’s Wearhouse division met quarterly expectations with a 3.8 percent comp increase, and Moores Canada surpassed them with its 7.1 percent increase. But guidance for the 98-unit K&G had been for a 1 to 2 percent increase and it concluded the first quarter with a 4 percent decline. The division’s men’s business, hampered by poor suit performance, declined 5.7 percent on a same-store basis despite increases of 0.9 and 16.3 percent, respectively, in its smaller women’s and children’s businesses.

“Our business is trending up sequentially stronger in the second quarter. However, we have more work to do to improve the average unit price at K&G,” Ewert said.

The shortfall at the nation’s largest suit retailer was the second in as many weeks in the men’s specialty sector. Late last month, Jos. A. Bank reported a rare sales and earnings miss of its own as first-quarter profits declined 16.7 percent and same-store sales fell 1 percent despite improvement towards the end of the period.

In the three months ended April 28, the Houston-based men’s specialty retailer’s net income fell 2 percent to $26.9 million from $27.4 million in the prior-year quarter. Earnings per share were 52 cents in both periods. Analysts had expected EPS of 55 cents and the company’s guidance was for EPS of 53 to 54 cents.

Overall revenues were up 1.1 percent to $586.6 million, from $580.3 million. Gross margin rose to 43.4 percent of sales from 42.5 percent in the first quarter of 2011.

Despite the problems at K&G and in the company’s corporate apparel segment, where sales declined 16.4 percent, to $49.9 million, MW’s embrace of the slimmer silhouette, dubbed Modern Fit, remained tight. Ewert said Modern Fit sales increased 32 percent in the quarter, raising its share to 27 percent of its total retail sales.

While the company reaffirmed full-year guidance for EPS of $2.70 to $2.78 a diluted share, its initial second-quarter projection for EPS of $1.12 to $1.13 fell short of Wall Street’s prior estimate of $1.22.

Shares tumbled nearly 20 percent in after-hours trading after closing up 65 cents, or 1.9 percent, to $35.57 earlier Wednesday.

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