The marriage between Macy’s and Tailored Brands is on the rocks.
At the same time that it reported sales declines for fiscal 2016 and warned of another tough year ahead, Tailored Brands revealed that its tuxedo rental initiative at Macy’s Inc. has failed to perform up to expectations.
Wall Street was quick to punish the company, pushing its stock down $7.53, or 32 percent, Thursday to close at $15.84 on the New York Stock Exchange.
In mid-2015, the men’s wear retailer inked a deal with Macy’s to open tuxedo rental shops inside 300 stores. By the end of 2016, Tailored Brands had opened 170 shops.
However, during a conference call with analysts, Douglas Ewert, chief executive officer of Tailored Brands, said: “The results we’ve seen thus far have been disappointing. We anticipated start-up losses of $10 million during 2016, which grew to $14 million, due in part to most of our stores missing the bulk of the wedding season.
“Based on last year’s results and the early reads on 2017, we now believe that the tux rental opportunity with Macy’s is not likely to be as big as we initially thought. We’re in conversations with Macy’s at the highest levels to look at creating a different, mutually beneficial arrangement going forward. However, at this time, it’s too early to know what that will be and there can be no assurance we’ll be able to restructure our agreement.”
As a result, the contract to add another 130 tuxedo shops has been put on hold, he said, “while we explore a potentially new model. Based on our current forecast for this business, we recorded a noncash impairment charge of $14 million in the fourth quarter, related to our fixed assets in Macy’s stores and we expect an operating loss (from this business) of between $19 million and $20 million in 2017.”
The news was not all that surprising considering that Macy’s, too, has been struggling. In late February, the department store reported that soft sales and charges related to store closings and severances resulted in a drop of 13.1 percent in earnings in the fourth quarter and 43 percent for the year.
During the conference call, Ewert said the challenge facing Tailored Brands “is a familiar theme right now” among retailers and he’s not expecting the situation to change in the foreseeable future.
“While we’re striving for improved performance in 2017, given the ongoing choppiness and overall declines we’re seeing in the business, we believe it is appropriate to plan for these trends to continue,” he said.
Late Wednesday, the company said sales for the year dropped 3.4 percent to about $3.4 billion, due to “significant store closures under the store rationalization program and decreases in comparable sales.”
Comp sales at the Men’s Wearhouse flagship division fell just under 1 percent, Moores, its Canadian division, was down nearly 3 percent, and K&G decreased more than 2 percent. Jos. A. Bank was down 9.5 percent, an improvement over the midteens decline expected at the outset of the year, but still not up to snuff.
Even so, Ewert remained positive. Despite the decrease in traffic last year, the company still managed to stabilize its Jos. A. Bank division, he said. And its store closure program — 75 full-line and 56 Jos. A. Bank stores were shuttered, along with 102 Men’s Wearhouse Tux stores — resulted in savings of more than $60 million. In 2017, eight more Jos. A. Bank and three tuxedo stores will be closed.
The company will shortly begin marketing its $395 custom suit across all media channels and future campaigns will feature its Made in America suits and influencers such as the company’s chief creative director Joseph Abboud to further strengthen the brands.
Overall, earnings in 2016 were $25 million, or 51 cents a diluted share, up from losses of $1 billion, or $21.26, a year earlier. Tailored Brands’ total operating income for the year came in at $132.8 million and compared with losses of $1.1 billion in 2015.
The company is projecting earnings per share in the range of $1.45 to $1.75 on comparable-store sales declines in the low-single digits at Men’s Wearhouse and comp increases in the midsingle digits at its Jos. A. Bank division. Analysts were expecting profits this year to be considerably higher at $2.10 a share.