Shares of The Men’s Wearhouse Inc. plummeted 28 percent to $29 in after-market trading after the retailer lowered fourth-quarter and full-year earnings-per-share estimates due to double-digit same-store sales declines in its Jos. A. Bank business.
The company also offered an adjusted EPS estimate for the recently closed third quarter, full results for which are set to be released on December 9. The retailer said it expects third-quarter EPS to range between 46 and 51 cents, well below its prior forecast of 87 cents.
For the full-year period, EPS is now expected to be between $1.75 and $2, which compares to prior guidance of between $2.70 to $2.90.
The lowered earnings “reflect significant comparable-sales weakness at Jos. A. Bank,” the retailer said in a statement after the market closed. “During the third quarter comparable sales decreased 14.6 percent at Jos. A. Bank, far below the company’s earlier expectations. This decrease was primarily driven by a decline in traffic as the company began the transition away from the Buy-One-Get-Three promotional events.”
By comparison, comps during the quarter rose 5.3 percent at Men’s Wearhouse with “clothing comps of 7.2 percent driven by higher transactions per store and tuxedo comps of [a gain of] 0.7 percent.” The retailer said K&G same-store sales for the quarter increased 3.7 percent — also driven by higher transactions per store — while Moores comps fell 5.4 percent, “primarily driven by weakening macroeconomic conditions in Canada.”
The stock drop left Men’s Wearhouse with a market capitalization of $1.9 billion, just above the $1.8 billion the company spent to buy Jos. A. Bank in June last year.
For the fourth quarter, the company’s said same-store sales at Jos. A. Bank “are now expected to decrease between 20 and 25 percent resulting from both a decline in traffic continuing from the third-quarter trend and a previously expected decline in units per transaction as customers adapt to the shift in the promotional strategy.”
But the retailer also said gross margins for Jos. A. Bank business are expected to increase as “clothing margin before occupancy” gains 500 basis points compared to the prior year. But as traffic declines, gross margin dollars will be below 2014’s levels.
Doug Ewert, chief executive officer, said while “we expected top-line volatility, as we previously stated, we did not anticipate that the impact from the traffic decline would occur to this degree, primarily because the prior-year comparisons got progressively easier as the quarter progressed. We also believed the timing of the final Buy-One-Get-Three Free event in October would do more to offset earlier traffic declines than it did.”
Ewert said the company has already begun “to strategically rebuild Jos. A. Bank for consistent and profitable long-term growth. We implemented several strategies that we believe are potentially offsetting variables to the expected traffic and unit declines including new, updated and expanded assortments, higher average unit retail prices to go along with our new promotional strategy, additional investments in new promotional and brand-building marketing, a new rewards-based customer loyalty program, and better selling behaviors, supported with extensive training and an updated incentive compensation structure for the Jos. A. Bank store employees.”