Men's Wearhouse Reports Fiscal 2014 Third Quarter And Nine Month Results

FREMONT, Calif., Dec. 10, 2014 /PRNewswire/ -- The Men's Wearhouse (NYSE: MW) today announced consolidated financial results for the fiscal third quarter and nine months ended November 1, 2014. 

GAAP diluted EPS for fiscal third quarter 2014 was $0.14 and adjusted diluted EPS was $0.83 excluding non-operating items⁽¹⁾.  Results for Jos. A. Bank are included in our financial statements beginning June 18, 2014, the date of the closing of the acquisition.

Doug Ewert, Men's Wearhouse chief executive officer, commented, "We continue to be pleased with the progress we are making on the Jos. A. Bank integration.  In addition, we are pleased with the overwhelmingly positive reaction of the Jos. A. Bank employees to our culture and are very optimistic about our opportunities to expand consolidated sales and margins as we complete the integration.  We remain confident in our 2017 guidance and our cost synergy run-rate at the end of the third quarter is well ahead of our original $15 million projection for the end of the 2014 fiscal year and our systems conversions are on target. 

"During the quarter, Jos. A. Bank's comparable sales were slightly below our internal expectations but, as part of our operating strategy for the brand, we are very encouraged by the positive increase of 123 basis points in the maintained product margin rate," added Ewert.  "We also completed our review of Jos. A. Bank's inventory and concluded we will dispose of approximately $50 million of product which will be recorded as a reduction in the inventory value at the date of acquisition; a purchase price accounting adjustment.  This product will be pulled from the stores as part of our regular physical inventory process in January.  Additionally, we wrote off approximately $10 million of slower renting tuxedo inventory to make room for more productive inventory in anticipation of the tuxedo rollout.  As a reminder, we will begin renting tuxedos from our existing rental inventory in Jos. A. Bank beginning in January 2015.  The in-store training has begun and we are excited about this revenue synergy opportunity.

"Excluding Jos. A. Bank results, the third quarter adjusted operating income increased low double digits driven by strong performances at Men's Wearhouse, Moores and K&G, posting comparable sales increases of 2.2%, 8.8% and 4.4%, respectively.  We are also excited about our recent announcements of in-home wedding consultations beginning early next year, the premiere of the Joseph Abboud website and the future Joseph Abboud flagship store in New York City.

"We have completed our strategic review of K&G.  As part of the review, we considered offers to acquire the business, none of which were acceptable.  We concluded that continuing to operate K&G as a part of the Company's overall portfolio will provide the most value to our shareholders.  We would like to thank K&G's management and employees for continuing to work diligently, which has led to the strong results that have been posted this year," concluded Ewert.

FISCAL THIRD QUARTER SALES REVIEW

The tables that follow are a summary of net sales for fiscal 2014 third quarter and fiscal nine months ended November 1, 2014.  The dollars shown are U.S. dollars in millions and due to rounded numbers may not sum.  The Moores comparable sales change is based on the Canadian dollar.  The comparable sales shown below for Jos. A. Bank are a comparison to the full periods, not a comparison of the acquisition period since June 18, 2014. Comparable sales exclude the net sales of a store for any month of one period if the store was not open throughout the same month of the prior period and include e-commerce net sales. 

Net sales at our largest brand, Men's Wearhouse, which represented 49% of total third quarter sales, were up 2.0% from last year's third quarter and comparable sales increased 2.2%.  On a comparable basis, an increase in clothing product average unit retails (or the net selling price per unit) more than offset decreases in units sold per transaction and average transactions per store. The higher margin tuxedo rental revenues comparable sales increased 5.3% in the third quarter of 2014. 

Jos. A. Bank was 26% of the Company's total third quarter sales.  Comparable sales for the third quarter decreased 8.1% with flat units sold per transaction and flat clothing product average unit retails offset by a decrease in average transactions per store.  Moores, our Canadian retail brand, was 8% of the total third quarter sales and had a comparable sales increase of 8.8% due to an increase in clothing product average unit retails that more than offset a decrease in units sold per transaction while average transactions per store were flat.  However, net sales for Moores only increased 1.9% due to an unfavorable change in the currency translation rate.  K&G was 8% of the Company's total third quarter sales with a comparable sales increase of 4.4% due to increases in average transactions per store and units sold per transaction which more than offset a decrease in average unit retails.  The Corporate Apparel segment, which represented 8% of total third quarter sales, had a sales decrease of 2.6%.

FISCAL THIRD QUARTER CONSOLIDATED RESULTS REVIEW

Sales
Total net sales increased 37.3% or $241.7 million to $890.6 million from $648.9 million. 

Retail segment sales for the quarter increased by 42.3% or $243.6 million due to $233.3 million in sales at Jos. A. Bank and an increase in comparable sales at all other retail brands. 

Corporate apparel sales decreased by 2.6% or $1.9 million.

Gross Margin
Total GAAP gross margin was $369.2 million.  Adjusted consolidated gross margin of $390.0 million increased $96.5 million or 32.9% compared to the prior year quarter.  The total adjusted gross margin rate decreased 145 basis points primarily due to lower margins at Jos. A. Bank.

Adjusted retail segment gross margin increased $94.7 million or 34.7%.  The adjusted retail segment gross margin rate decreased 254 basis points including Jos. A. Bank and increased 63 basis points excluding Jos. A. Bank. 

Corporate apparel gross margin increased $1.8 million or 8.7% and increased 324 basis points.

Advertising
Advertising expenses increased $19.4 million to $42.1 million, an increase of 85.9% or 124 basis points compared to the prior quarter primarily due to Jos. A. Bank advertising expenses.

SG&A
GAAP SG&A expenses increased $71.1 million to $282.0 million, an increase of 33.7% but a decrease of 84 basis points.  Adjusted SG&A expenses were 190 basis points favorable to the prior year.  On an absolute dollar basis, adjusted SG&A increased by $58.8 million or 28.9% primarily due to the addition of Jos. A. Bank SG&A. 

Operating Income
GAAP operating income was $45.2 million compared to GAAP operating income of $60.0 million last year.  Adjusted operating income was $85.7 million, an increase of $18.2 million or 26.9% over the prior year adjusted operating income of $67.5 million.

Interest and Taxes
Net interest expense for the third quarter was $25.0 million. 

The effective tax rate for the third quarter was 65.3%.  Excluding the impact of non-deductible transaction costs, the adjusted effective tax rate was 33.6%.

Net Earnings
GAAP net earnings were $6.8 million compared to GAAP net earnings of $38.2 million last year.  GAAP diluted earnings per share was $0.14 compared to $0.79 in the prior year quarter.  Adjusted net earnings were $40.1 million, or $0.83 adjusted diluted earnings per share compared to adjusted net earnings of $43.1 million, or $0.90 adjusted diluted earnings per share last year.

Balance Sheet
In connection with the acquisition of Jos. A. Bank, debt at the end of the third quarter was approximately $1.7 billion.  Inventories increased $442.2 million to $1,082.4 million from $640.2 million due primarily to Jos. A. Bank and inventory related to Joseph Abboud.  This increase is net of the $50 million decrease in inventory associated with the review of Jos. A. Bank's inventory at the date of acquisition.  Additionally, approximately $10 million of the increase was related to an inventory build for our corporate apparel business to service existing customers and the remaining increase was primarily driven by new store openings at Men's Wearhouse.

JOS. A. BANK STANDALONE FISCAL THIRD QUARTER HIGHLIGHTS⁽²⁾ 

Clothing sales decreased 5.2% to $214.2 million from prior year third quarter.  Maintained product margin increased 123 basis points and total clothing margin excluding occupancy increased 54 basis points to 55.6%. 

Occupancy costs increased from $35.7 million in the prior year, or 14.4% of total sales, to $40.5 million, or 17.3% of total sales in the current period primarily due to deleveraging caused by the decrease in Jos. A. Bank comparable sales and the impact of new stores.

FISCAL NINE MONTH CONSOLIDATED RESULTS REVIEW

Sales
Total net sales increased 21.5% or $411.5 million to $2,324.2 million, up from $1,912.7 million. 

Year-to-date retail segment sales increased by 23.1%, or $400.1 million, due to $347.0 million in sales at Jos. A. Bank since the closing of the acquisition and an increase in comparable sales at all other retail brands. 

Corporate apparel sales increased by 6.2%, or $11.4 million.

Gross Margin
Total GAAP gross margin was $1,011.1 million.  Adjusted consolidated gross margin of $1,038.7 million was an increase of $158.4 million, or 18.0%, compared to the prior year quarter.  The total adjusted gross margin rate decreased 133 basis points primarily due to lower margins at Jos. A. Bank.

Adjusted retail segment gross margin increased $154.2 million, or 18.7%.  The adjusted retail segment gross margin rate decreased 172 basis points including Jos. A. Bank and increased 23 basis points excluding Jos. A. Bank. 

Corporate apparel gross margin increased $4.3 million, or 7.7%, and increased 42 basis points.

Advertising
Advertising expenses increased $40.5 million to $109.1 million, an increase of 59.0% or 111 basis points primarily due to the Jos. A. Bank advertising expenses and the brand advertising associated with the rollout of Joseph Abboud.

SG&A
GAAP SG&A expenses increased $164.1 million to $786.9 million, an increase of 26.4% or 130 basis points.  Adjusted SG&A expenses were 203 basis points favorable to the prior year.  On an absolute dollar basis adjusted SG&A increased by $84.5 million, or 13.8%, primarily due to the addition of Jos. A. Bank SG&A. 

Operating Income
GAAP operating income was $115.2 million compared to GAAP operating income of $179.3 million last year.  Adjusted operating income was $232.7 million, an increase of $33.5 million, or 16.8%, over the prior year adjusted operating income of $199.2 million.

Interest and Taxes
Net interest expense for the nine months was $39.2 million.

The effective tax rate for the nine months was 51.5%.  Excluding the impact of non-deductible transaction costs, the adjusted effective tax rate was 34.7%.

Net Earnings
GAAP net earnings were $35.5 million compared to GAAP net earnings of $114.2 million last year.  GAAP diluted earnings per share was $0.74 compared to $2.29 last year.  Adjusted net earnings were $126.1 million, or $2.61 adjusted diluted earnings per share, compared to adjusted net earnings of $127.2 million, or $2.55 adjusted diluted earnings per share last year.

CONFERENCE CALL AND WEBCAST INFORMATION

At 9:00 a.m. Eastern time on Thursday, December 11, 2014, Company management will host a conference call and real time webcast to review fiscal 2014 third quarter and nine month results.

To access the conference call, dial 913-312-1485.  To access the live webcast presentation, visit the Investor Relations section of the Company's website at http://ir.menswearhouse.com. A telephonic replay will be available through December 18, 2014 by calling 719-457-0820 and entering the access code of 5527190#, or a webcast archive will be available free on the website for approximately 90 days.

STORE INFORMATION

Founded in 1973, Men's Wearhouse is one of North America's largest specialty retailers of men's apparel with 1,760 stores.  The Men's Wearhouse, Jos. A. Bank, Moores and K&G stores carry a full selection of suits, sport coats, furnishings and accessories in exclusive and non-exclusive merchandise brands and Men's Wearhouse and Tux stores carry a limited selection.  Most K&G stores carry a full selection of women's apparel.  Tuxedo rentals are available in the Men's Wearhouse, Jos. A. Bank, Moores and Men's Wearhouse and Tux stores.  Additionally, Men's Wearhouse operates a global corporate apparel and workwear group consisting of Twin Hill in the United States and Dimensions, Alexandra and Yaffy in the United Kingdom.    

This press release contains forward-looking information.  The forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are not guarantees of future performance and a variety of factors could cause actual results to differ materially from the anticipated or expected results expressed in or suggested by these forward-looking statements.  These forward-looking statements may be significantly impacted by various factors, including, but not limited to: actions by governmental entities, domestic and international economic activity and inflation, success, or lack thereof, in executing our internal operating plans and new store and new market expansion plans, including successful integration of acquisitions, including Jos. A. Bank, performance issues with key suppliers, disruption in buying trends due to homeland security concerns, severe weather, foreign currency fluctuations, government export and import policies, aggressive advertising or marketing activities of competitors, and legal proceedings. Future results will also be dependent upon our ability to continue to identify and complete successful expansions and penetrations into existing and new markets and our ability to integrate such expansions with our existing operations.

These forward-looking statements are based upon management's current beliefs or expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. The following factors, among others, could cause actual results to differ materially from those expressed or implied in the forward-looking statements: (1) the possibility that the expected benefits from the Jos. A. Bank transaction will not be realized within the anticipated time period, (2) the risks related to the costs and difficulties related to the integration of Jos. A. Bank's business and operations with our business and operations, (3) the inability to obtain, or delays in obtaining, cost savings and synergies from the transaction, (4) unexpected costs, charges or expenses resulting from the transaction, (5) litigation relating to the transaction, (6) the inability to retain key personnel and (7) the possible disruption that may be caused by the Jos. A. Bank transaction to our business and operations, including relationships with customers, employees and other third parties.

The forward-looking statements in this press release speak only as of the date hereof. Except for the ongoing obligations of Men's Wearhouse to disclose material information under the federal securities laws, Men's Wearhouse undertakes no obligation to revise or update publicly any forward-looking statement, except as required by law.  Other factors that may impact the forward-looking statements are described in Men's Wearhouse's annual report on Form 10-K for the fiscal year ended February 1, 2014 and quarterly reports on Form 10-Q.  For additional information on Men's Wearhouse, please visit the Company's websites at www.menswearhouse.com, www.josbank.com, www.josephabboud.com, www.mooresclothing.com, www.kgstores.com, www.twinhill.com, www.dimensions.co.uk and www.alexandra.co.uk.

Contact:
Investor Relations
(281) 776-7575
[email protected]

Kelly Dilts
Men's Wearhouse, SVP, Finance & IR

Ken Dennard
Dennard ▪ Lascar Associates

(1) Adjusted information is non-GAAP financial information provided to enhance the user's overall understanding of the Company's current financial performance. Reconciliations of adjusted financial information to GAAP results are included in the tables at the end of this release.

(2) Based on adjusted information provided to enhance the user's overall understanding of Jos. A. Bank's current financial performance and includes reclassifications to conform Jos. A. Bank's historical results with the Company's current external reporting presentation.

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SOURCE Men's Wearhouse

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