Executive board chairman Dinesh Lathi will take over the day-to-day operation of Tailored Brands when Doug Ewert retires as chief executive officer at the end of the month.
The news was revealed during the company’s second-quarter earnings call Wednesday afternoon. Lathi was not named interim ceo, as industry sources had speculated, but will continue to hold his board title while the company conducts “a comprehensive search” for a replacement.
“I am honored and excited to lead the team during the transition process,” Lathi said on the call. “The board has begun a comprehensive search for a new ceo. Our top priority is identifying the best person to lead the company. The board will move forward thoughtfully and will take the time it needs to find the right leader for Tailored Brands.”
He said that when he steps up into the operational role in a few weeks he will be “focused on working with the executive team to accelerate the pace of execution and innovation and our core growth strategies of meeting consumers’ demand for personalization by growing our custom business, strengthening our brands through transformative marketing campaigns, and enhancing our omnichannel capabilities to deliver a superior shopping experience.”
Lathi, 47, is the former ceo of online home-decor site One Kings Lane Inc. Before that, he spent seven years in various executive roles at eBay Inc., and also was in investment banking and private equity for eight years. He joined Tailored Brands as a director in 2016.
At the end of August, the company said Ewert, its longtime ceo, would be retiring at the end of September. Ewert, 54, has agreed to stay on as a strategic adviser until the end of the year. He’s been with the company for 23 years and has been ceo since 2011.
The Lathi news came as the company reported that for the quarter ended Aug. 4, diluted earnings per share were 97 cents and adjusted earnings $1.07, down from diluted earnings a share of $1.19 in the same period of last year when there were no adjusted items.
Total comparable-store sales rose 1.7 percent in the period while total sales decreased 3.2 percent to $823.4 million. The total sales decline was attributed to a $26.9 million drop in tuxedo rental revenue due to a calendar shift, the earlier prom season and a shift in demand for weddings to the third quarter, the company said.
By division, Men’s Wearhouse’s comparable sales increased 1 percent, Jos. A. Bank’s comp sales increased 2 percent, K&G’s were up 3.5 percent and Moores, the Canadian chain, was up 3.7 percent.
On a GAAP basis, operating income was $88 million compared with $108.5 million last year. On an adjusted basis, operating income was $92.5 million compared with $108.5 million last year. As a percent of sales, adjusted operating margin decreased 150 basis points to 11.2 percent.
Second quarter GAAP results include charges of $8.1 million related to the partial redemption of $175 million of senior notes, $4.4 million related to the closure of a rental product distribution center, and $200,000 related to an unfavorable final working capital adjustment associated with the previously announced divestiture of the MW Cleaners business. Of the $12.7 million total charges, $6.3 million were non-cash.
“We are pleased to report positive comparable sales for all of our retail brands this quarter,” said Ewert. “We executed well on growing our custom business and on increasing transactions through brand marketing campaigns and enhanced omnichannel initiatives. I am also pleased with the progress we are making to move to a leaner, more efficient inventory model, which is particularly important as custom clothing becomes a larger percentage of our mix. With leaner inventories, we can improve the customer experience and free up working capital.”
During the call, Ewert said custom sales during the quarter averaged over $4 million a week, doubling from the same period last year. He said growing the category further is “a top priority for our company. Custom represents a key sustainable competitive advantage for Tailored Brands,” he said, adding, “We believe we are the largest and fastest growing retailer of custom suits.”
He said that in the second quarter, the company launched a two-week delivery test for the Joseph Abboud and Jos. A. Bank Reserve custom suits, which are created in its domestic factories. And as of Sept. 1, delivery times for the lower-priced Joe and 1905 custom suits, produced off-shore, have been brought down to three to four weeks.
A new Custom Express initiative, where suits in a limited fabric choice are available in just seven days, has resulted in “encouraging” sales and will be rolled out to all Men’s Wearhouse, Jos. A. Bank and Moores stores this fall. Kenneth Cole Awearness custom suits will also be launching this month.
Additionally, the company said it is accelerating the rollout of its dedicated custom shops program within its stores to 500 from 400 and will have 540 in place by year’s end.
Ewert also pointed to the completion in the quarter of a partial redemption of $175 million in senior notes, which brought the company’s total debt down by $325 million.
The company confirmed its outlook for fiscal 2018 for Men’s Wearhouse and Jos. A. Bank’s comparable sales to be in the positive low-single digits, and raised its outlook for Moores to the positive low-single digits, up from flat-to-up slightly, and K&G flat-to-up slightly, up from flat-to-down slightly.
The company also reaffimed its earnings per share projection, which is expected to be in the range of $2.35 to $2.50.
Investors were pleased with the news, and the stock was trading ahead more than 10 percent in the after-hours session Wednesday.