In revealing a loss for the fourth quarter, Men’s Wearhouse said it has abandoned the Designer Spotlight experiment at the K&G Fashion Superstore division.
In a call with analysts Wednesday afternoon, Doug Ewert, president of the Houston-based specialty chain, said the initiative, which launched last March and included merchandise from European designers including Missoni, Dolce & Gabbana, Gucci, Prada and Armani, performed “poorly” and has been liquidated. “These offerings were ineffective and resulted in us having to clear unproductive merchandise at very low margins,” said Ewert.
Around 30 of K&G’s 100-plus stores had installed boutiques for Designer Spotlight, selling merchandise at 50 percent to 70 percent off regular retail.
Although women’s is still viewed as a growth vehicle for K&G, the company is now expecting that growth to be modest, not aggressive, Ewert said. Instead, K&G will renew its focus on its core customer, African-American men.
At its flagship Men’s Wearhouse chain, the company is putting together “an active remodeling” plan this year and also will open 20 new units. Ewert cited the recently revamped store on 20th Street and Sixth Avenue in New York as a key indicator of the direction in which the company is moving. “The feedback that we’ve gotten is that it is trend-right.”
Ewert addressed concerns about the rising costs of raw materials and labor saying: “We anticipate that we will maintain or improve product quality while maintaining initial markup level in margin stability” by diversifying manufacturing resources, increasing private label and “implementing very selective price increases.” Any price hikes would come in the second half, he added.
The company plans to continue with an aggressive promotional marketing message. By working with a creative director from the past, the company has enhanced its commercials to offer a “promise of quality combined with great value,” said founder and chief executive officer George Zimmer. “This focus is producing solid results.”
In the three months ended Jan. 29, the retailer generated a net loss of $14.1 million, or 27 cents a diluted share, versus red ink totaling $18.8 million, or 36 cents, in the year-ago quarter. Excluding nonrecurring items in both periods, the adjusted loss grew to 19 cents a diluted share, 1 cent better than the consensus estimate of analysts, from an adjusted loss of 11 cents in the 2009 period.
Quarterly revenue grew 18.6 percent to $542.1 million from $457.2 million. The bulk of the sales increase was attributable to the growth of the corporate apparel segment to $62.5 million from $3.1 million following the August acquisitions of Dimensions and certain assets of Alexandra, two British workwear firms.
However, its three principal nameplates all registered growth in the quarter. Sales at Men’s Wearhouse were up 5.7 percent to $311.1 million while K&G was up 4 percent to $96.4 million and Moores rose 7.3 percent to $66.3 million. Comparable-store sales expanded 4.3 percent at Men’s Wearhouse, 4.5 percent at K&G and, based on the Canadian dollar, 2.3 percent at Moores.
Gross margin ticked up to 37.3 percent of sales from 37.1 percent as a shift toward tuxedo rentals and a decrease in occupancy costs as a percent of sales were offset by a decrease in merchandise margins and the growth of the relatively lower-margin corporate business.
For the full year, net income advanced 46.5 percent to $67.7 million, or $1.27 a diluted share, versus profits of $46.2 million, or 88 cents, in fiscal 2009. Revenues grew 10.1 percent to $2.1 billion from $1.91 billion in 2009. Comps rose 4.7 percent at Men’s Wearhouse and 2.2 percent at Moores while declining 1.5 percent at K&G.
In preliminary guidance for the new year, the company projected earnings of between $1.71 and $1.81 a share on a sales increase of 8 percent to 9 percent. The sales estimate assumes $220 million in revenues from the acquired workwear operations, which for the first time will be included in operations for the entire year.