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Promotions Paying Off at Men’s Wearhouse

The promotional posture instituted at The Men’s Wearhouse at the end of last year continues to pay dividends.

Men’s Wearhouse is running buy-one-get-one-free promotions.

The promotional posture instituted at The Men’s Wearhouse at the end of last year continues to pay dividends.

On Wednesday, the Houston-based company reported second-quarter profits rose more than 20 percent despite a decline in sales. In addition to aggressive promotions — buy-one, get-one-free suit sales, and now buy one, get the second for $100 — the strong showing was also driven by a double-digit decline in expenses.

In a conference call, George Zimmer, chief executive officer, told analysts, “In the fourth quarter of 2008, we learned that at Men’s Wearhouse and Moores [the company’s Canadian chain], a highly promotional strategy was effective in driving unit sales and gaining market share in our dominant clothing category, suits. Therefore, facing the ongoing challenging macroeconomic environment, we planned our 2009 business accordingly.”

Zimmer said the company’s departure from its “historic path of everyday low prices has been as successful as it was gut-wrenching to implement. So I’m encouraged and confident that the changes we have made and continue to refine in our pricing and marketing strategies are creating value that our customers are responding to very positively.”

Zimmer said according to industry estimates, unit sales of suits in the U.S. for the first half of 2009 were down in the double digits from the prior year. At Men’s Wearhouse, however, “our suit business in dollar terms is up 4.1 percent, and in unit terms, up 23 percent. Clearly we are growing our market share.”

Turning to tuxedo rentals, Zimmer said although wedding rentals are “soft, if not slightly down year-over-year,” the company’s sales rose 1.7 percent in the quarter, indicating the retailer is gaining market share here as well, “albeit at a slower rate than tailored clothing,” Zimmer said.

At the MW Tux stores, the company continues to add other categories to increase sales, including casualwear such as jeans and T-shirts. Zimmer said some stores are doing well with that merchandise, while others are struggling. “So we will continue to investigate other ways to stimulate sales in our tuxedo rental stores.”

Turning to its K&G division, Zimmer said the stores “significantly outperformed their volume targets for the first half of the year, with a 7.5 percent increase over plan in sales per gross square foot. Our increase over plan is a result of a significant improvement in our ladies’ business, upgrades to our store look and feel and an increased marketing spend and brand awareness.”

Responding to a question from an analyst about a report that competitor Jos. A. Bank Clothiers is considering entering the tuxedo rental business, Zimmer said. “We welcome the competition, but I would say they should think this through very carefully.” Neal Black, the current ceo, responded to WWD: “We have several growth initiatives under investigation for 2010 and beyond. We have always had an interest in all aspects of the formalwear business and we have a significant existing business in tuxedo sales. We have not made any announcement about tuxedo rentals but if we were to do so, it would be with a full and complete understanding of the competitive market.”

In the three months ended Aug. 1, net income hit $39.5 million, or 75 cents a diluted share, 20.3 percent above the $32.8 million, or 63 cents, achieved in the second quarter of 2008. The results easily passed both analysts’ consensus estimates for earnings per share of 61 cents a share and the company’s guidance of between 56 cents and 60 cents provided on June 8.

Sales fell 3.5 percent to $526.2 million from $545.3 million in the year-ago quarter with same-store sales dropping 2 percent at Men’s Wearhouse, 3.6 percent at K&G and, in Canadian dollars, 3.4 percent at Moores.

Gross margin fell to 45.2 percent of sales from 46.4 percent a year ago.

In initial guidance for the third quarter, the company said it expected earnings of 27 cents to 30 cents a diluted share, below the consensus estimate of 32 cents, on a 2 to 3 percent decline in same-store sales in its retail business and a 1 to 2 percent increase in same-store rentals for tuxedos. Zimmer said, “The reality is our business tends to lead the decline in business cycles and lag during the upturn.”

Year-to-date profits rose 4.6 percent to $44.7 million, or 85 cents a diluted share, while sales were down 4.4 percent to $990.3 million from the $1.04 billion registered in the first six months of 2008.