Men's Wearhouse CEO Discusses Q3 2010 Results - Earnings Call Transcript

Men's Wearhouse CEO Discusses Q3 2010 Results - Earnings Call Transcript
By Seeking Alpha ,

Men's Wearhouse (MW)

Q3 2010 Earnings Call

December 7, 2010 5:00 p.m. ET

Executives

Ken Dennard – IR Counsel

George Zimmer – Chairman and CEO

Neill Davis – EVP, CFO, Treasurer and Principal Financial Officer

Doug Ewert – President and COO

Analysts

Ike – JP Morgan

Janet Kloppenburg – JJK Research

David Mann – Johnson Rice

John Kiernan – Cowen & Company

Presentation

Operator

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Good evening, ladies and gentlemen. Thank you for standing by. Welcome to the Men’s Wearhouse third quarter 2010 earnings conference call. [Operator Instructions.] This conference is being recorded today, Tuesday, December 7, 2010. I would now like to turn the conference overt to Ken Dennard with DRG&L. Please go ahead sir.

Ken Dennard

Thank you and good afternoon everyone, and welcome to the Men’s Wearhouse third quarter 2010 earnings call. Today’s call with management will cover review of the third quarter results, and fourth quarter financial guidance, followed by a Q&A session.

Please note management will be making a number of forward-looking statements today, and all such statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions mentioned today, due to a variety of factors that affect the company, including the risks specified in the most recently filed Form 10-K and 10-Q. Also, I'd like to say this call is copyrighted material of Men’s Wearhouse and cannot rebroadcast without our written consent.

I’d now like to turn the call over to George Zimmer, Chairman and Chief Executive Officer. George?

George Zimmer

Thanks Ken, and good afternoon everyone. The year-to-date results that we reported today of a 7.5% increase in total sales, and a 20% increasing GAAP operating income, are a reflection of many strategic and operating initiatives, the groundwork of which was developed at the beginning of fiscal year 2009. While Neill and Doug will touch on those in their prepared remarks today, I do want to call your attention to our marketing and promotional efforts.

At Men's Wearhouse stores, we introduced a new television campaign and promotional offers, with impressive results, specifically a 9.6% comparable store sales increase for the quarter, which was on top of a strong performance in the prior year quarter. Our strategies for the fourth quarter as well as into fiscal 2011 will be to focus our television spend on compelling offers that drive traffic and volume at acceptable margins.

Year-to-date, the mix of total customers shopping Men's Wearhouse is 52% existing and 48% new, but new customer traffic is up 5% over the prior year. Based on these results, it's our expectation that this marketing strategy, which has been running for the last three months, will enable us to reduce the level of annual marketing expenses in fiscal 2011 by up to $10 million across all divisions, including K&G and Moore's, although the results at K&G and Moore's are not as robust as Men's Wearhouse. And also, we're increasing our focus to mine the database of our 15 million customers in our three loyalty programs to more effectively target offers that encourage additional visits and increased share of closet.

And finally, an aspect of our business that I want to briefly touch on concerns our capital allocation strategies. For those that have followed the Men's Wearhouse since going public in 1992, you are aware that over the years we have maintained a conservative fiscal discipline which is most evident in our capital structure and levels of liquidity. Those strategies have enabled our company to continue to pursue long-term growth largely unabated due to cyclical downturns. The result? A compounded annual growth rate in top and bottom line in excess of 10% since going public 18 years ago.

Our first priority is to ensure that we maintain the capacity to add to our businesses, such as the recent acquisition of Dimensions and Alexandra in the United Kingdom for a cash consideration of approximately $100 million. Second, to fund an ongoing reinvestment program within our store base, whether it be new stores or remodels, to remain current in the mind of the consumer. And lastly, to maintain a level of operating liquidity in the range of $200 million, which for our asset size we believe is appropriate.

At the same time, we are continuing to generate high levels of free cash flow, and to the extent we find ourselves in an excess capital position, we have and will continue to return that capital to our shareholders through our dividend programs, maintaining maximum flexibility for the company.

Before I turn the call over to Neill, I want to comment on the efforts of our employees in our stores and distribution centers. The changes we made in our promotional strategies and the ongoing growth of our tuxedo rental business have placed significant additional burdens on everyone.

Our employees have responded exactly as I would have hoped, with a can-do attitude that continues our emphasis on exemplary customer service, doing whatever it takes to make the customer experience extraordinary. I truly believe that this level of customer service is a significant reason for our current success in our tuxedo rental business.

Now I'll turn the call over to Neill for details of the third quarter.

Neill Davis

Thanks George, and good afternoon everyone. Total company sales increased 19.1% for the quarter. Sales at our retail stores increased $36.3 million, or 7.9%. This was due mainly to a $20.1 million increase in retail apparel sales and a $13.6 million increase in tuxedo rental revenues.

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