Men's Wearhouse Inc. (MW) said Wednesday after the markets closed that second quarter earnings dropped 40% from last year, as sales declined at its apparel stores and tuxedo rental chain amid weak customer traffic due to an economic downturn in the U.S. However, the company's quarterly earnings per share, excluding items, came in above analysts' expectations. At the same time, the company lowered its full year earnings outlook for the second time this year.
The Houston, Texas-based men's apparel retailer reported GAAP net income for the second quarter of $32.8 million or $0.63 per share, compared to $54.2 million or $1.00 per share for the year-ago quarter.
Excluding $4.5 million or $0.09 per share of closure costs incurred in connection with the company's previously announced planned closure of the Canadian based manufacturing facility operated by the company's subsidiary Golden Brand, adjusted earnings for the most recent quarter was $0.72 per share.
The Canadian based manufacturing facility operated by the company's subsidiary, Golden Brand, was closed on July 11.
On average, 6 analysts polled by First Call / Thomson Financial expected the company to earn $0.70 per share for the second quarter.
Last month, Men's Wearhouse lowered its second quarter earnings guidance, citing higher-than-expected costs to close the Canadian based manufacturing plant operated by its Golden Brand subsidiary and a bigger-than-expected drop in tuxedo-rental unit volume at its MW Tux stores. The company cut its GAAP earnings outlook to a range of $0.61 to $0.65 per share from its prior outlook of $0.69 to $0.73 per share and slashed its adjusted earnings outlook to a range of $0.70 to $0.74 per share from its prior outlook of $0.75 to $0.79 per share.
Gross margin for the quarter fell to 46.41% from 48.21% a year ago. Gross margin before occupancy costs decreased to 59.93% from 60.20% last year.
Operating income for the second quarter was $54.2 million or 9.93% of net sales, compared to $82.7 million or 14.52% of net sales in the second quarter of last year. Excluding $7.3 million in costs associated with the closing of Golden Brand, operating income for the quarter was $61.5 million or 11.27% of net sales, compared to $82.7 million or 14.52% of net sales in the prior year quarter.
Men's Wearhouse said net sales for the second quarter fell 4.2% to $545.29 million from $569.35 million in the same quarter last year. Four analysts had a consensus revenue estimate of $554.62 million for the second quarter.
The company's U.S. sales slipped 5.3% to $470.0 million from $496.5 million a year ago. U.S. same-store sales fell 8%
Second quarter apparel sales, which represent 70.81% of net sales, decreased 4.0% to $386.1 million mainly due to declines in the company's same-store sales amid weak customer traffic.
Second quarter Tuxedo rental revenues, which represent 23.37% of net sales, decreased 5.3% to $127.5 million, mainly driven by reduced tuxedo rental sales at the company's stores acquired from After Hours, partially offset by increases at the company's Men's Wearhouse stores.
Men's Wearhouse acquired After Hours Formalwear from Federated Department Stores Inc. in April 2007 and renamed the division MW Tux. The seasonality of MW Tux revenues is heavily concentrated in April, May and June. Second quarter, followed by third quarter, is the highest revenue quarter and first and fourth quarters are considered off season. As a result, MW Tux typically has income in the second and third quarters and losses in the first and fourth quarters.
As of August 2, 2008, the company operated a total of 1,287 stores, up from 1,269 stores at August 4, 2007. The Men's Wearhouse, Moores and K&G stores carry a full selection of designer, brand name and private label suits, sport coats, furnishings and accessories and the MW Tux stores carry a limited selection. Tuxedo rentals are available in the Men's Wearhouse, Moores and MW Tux stores.
For the first six months of the year, the company reported GAAP net income of $42.8 million or $0.82 per share, compared to $95.2 million or $1.74 per share for the same period last year.
Net sales for the first-half declined to $1.04 billion from $1.07 billion in the prior year quarter.
Looking forward to the third quarter, the company said it expects GAAP earnings of $0.34 to $0.38 per share and adjusted earnings of $0.36 to $0.40 per share, which excludes estimated Golden Brand closure costs of $0.02 per share. Analysts currently expect the company to earn $0.53 per share for the third quarter.
For the full year 2008, the company said it now expects GAAP earnings of $1.38 to $1.48 per share and adjusted earnings of $1.50 to $1.60 per share, which excludes estimated Golden Brand closure costs of $0.12 per share. Previously, the company expected GAAP earnings of $1.65 to $1.75 per share and adjusted earnings of $1.75 to $1.85 per share, which excluded the estimated Golden Brand closure costs of $0.10 per share. Analysts currently expect the company to earn $1.63 per share for the full year 2008.
Men's Wearhouse shares, which have traded in a range of $15.41 to $52.81 over the past year, closed Wednesday's regular trading session at $20.01, down 54 cents or 2.63% but gained 64 cents or 3.20% in after hours trading.
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