The Men’s Wearhouse, Inc. (MW)
Q1 2010 Earnings Call
June 9, 2010 5:00 PM ET
Ken Dennard – DRG&E, IR
George Zimmer – Chairman and CEO
Neill Davis – Chief Financial Officer
Doug Ewert – President and COO
Janet Kloppenburg – JJK Research
David Mann – Johnson Rice
Betty Chen – Wedbush Securities
Richard Jaffe – Stifel Nicolaus
Ike Boruchow – JP Morgan
Laura Champine – Cowen and Company
Barry Posternak – Ramsey Asset Management
Previous Statements by MW
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Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the Men’s Wearhouse First Quarter 2010 Earnings Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions)
This conference is being recorded today, Wednesday, June 9, 2010. I would now like to turn the conference over to Mr. Ken Dennard with DRG&E. Please go ahead, sir.
Thank you, Danny, and good afternoon. We welcome you to the Men’s Wearhouse first quarter 2010 earnings call. Today’s call with management will cover a view of the first quarter results and second quarter financial guidance, followed by a Q&A session.
Please note, the company 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. This call is copyrighted material to Men’s Wearhouse and cannot be rebroadcast without our express written consent.
And now, I’d like to turn the call over to George Zimmer, Chairman and Chief Executive Officer. George?
Thanks, Ken, and good afternoon. After my remarks and Neill’s financial summary, you will be hearing from Doug Ewert, that’s spelled E-W-E-R-T, the President and Chief Operating Officer of Men’s Wearhouse. Doug and I have worked together for 15 years. He started as our neckwear buyer, worked himself up to GMM and Chief Merchandising Officer of the entire company before becoming President. Doug cut his teeth on Macy’s executive training programs and remained with them mostly in men’s merchandising for 10 years. After his comments, Doug will join Neill and me for the Q&A.
Our bottom line results for the first quarter were significantly ahead of our guidance, as well as prior year results. Positive comparable store sales increases at both Men’s Wearhouse and Moores, coupled with marked improvements in product margins, were the primary drivers to the first quarter upside. The strength of those stores offset an under-plan performance at K&G.
We are experiencing difficulty in getting traction at K&G due to macroeconomic headwinds impacting the men’s business, particularly in tailored clothing and the lack of brand awareness is limiting the expected growth in its ladies categories. Although that category for K&G did produce a mid single-digit comparable store sales increase.
Our investments in marketing will be significant in the second quarter as all three retail divisions will now have new television creative campaigns. Some of you may have already seen the new Men’s Wearhouse and K&G spots. It’s too soon to tell whether these campaigns will be effective but we are pleased with the new look. Of course, all new television will have an internet interpretation as well.
Our Tux program continues to grow even as we close on profitable MW Tux stores. We will continue to evaluate Tux stores as leases expire and selectively open new regular Men’s Wearhouse stores about 10 this year, so that the total number of stores offering tuxedo rentals will remain around 1,000.
I believe the operating processes in tuxedo rental are complex. We feel our efforts in this category are also complex and underappreciated. We rent about one in three tuxedos in the United States and Canada. The customer service required at that scale of business is extraordinary. Of course, Men’s Wearhouse is a company, where the work environment allows most ordinary people to give extraordinary customer service.
Our overall performance for the first half of the fiscal year’s expected result in modest topline growth and significant improvement in gross profit, some of which will be reinvested in brand building and SG&A costs, the resulting increase in operating income is estimated in the high teens.
I’ll now turn the call over to Neill and Doug for more details surrounding the first quarter.
Thanks, George, and good afternoon, everyone. Earlier today we reported first quarter diluted earnings per common share of $0.26, compared to the prior year quarter of $0.10 per common share. This significant increase as George indicated was driven by a return to positive sales growth in the quarter, a 196 basis point increase in gross profit margins, operating expense leverage of 67 basis points and a lower effective tax rate for the quarter.
Comparable store sales at our Men’s Wearhouse and Men’s Wearhouse and Tux stores increased 2.4%, A&D declined 4.9% and our Canadian business, Moores, increased 20 basis points.
Gross margins before occupancy cost for the first quarter increased 105 basis points to 57.2%. This improvement is driven by retail apparel product margins due primarily to different promotional offerings, as well as, the mix of products on promotion in fiscal 2010, compared to fiscal 2009, as well as lower product costs. Tuxedo rental margins also improved due mainly to a decrease in rental product retirement costs in fiscal 2010.