Total store sales for the year-ended January 31 slumped 6.6 percent to $1.97 billion, due to declining store traffic and deteriorating average net sales per square foot (8.2% at Men’s Wearhouse locations and 16.4% at K&G locations) caused by the recession.
Gross margin declined 280 basis points to 43.1 percent, resulting from increased occupancy costs [from higher rental rates for new and renewed leases] and the failure—Neill’s remarks not withstanding—of merchandising discounts to influence buying patterns of apparel shoppers.
Expectations are that difficult economic conditions will continue into 2010. As the company cannot predict when the economy will recover, senior management plans to stimulate sales with even deeper clothing discounts and to implement additional operation cost controls, such as reductions in inventory purchases and fewer store openings.
Due primarily to the lack of forward visibility as to macro economic conditions, management will only provide financial guidance for the first half: earnings per share in a range of $0.45 to $0.65; comparable store sales of its retail apparel business are anticipated to decline in a range of six percent to 10 percent and comparable store sales of its tuxedo rental revenues are expected to increase between seven percent and nine percent.
Several retail analysts have upgraded their ratings, too, opining that Men’s Wearhouse could deliver better-than expected 2009 operating results, driven by significant cost-savings and higher tuxedo rental bookings and clothing sales (from additional discounting). The 10Q Detective disagrees, predicting that a growing dependence on deep discounts will serve only to further pressure merchandising margins. In addition, although tuxedo rentals remain an area of growth, even a nine percent sales gain will do little to offset falling sales (as tuxedo rental sales represented only 7.5% of total apparel sales in the fourth quarter of 2008).
Because an appeal makes logical sense is no guarantee that it will work. ~ NYC ad genius William Bernbach (1911 – 1982)
Chief executive and founder, George Zimmer also serves as the face of the company in television commercials, simply extolling: “you’re gonna’ like the way you look! I guarantee it.” Unfortunately, the apparel retailer’s discounting practices might not be a comfortable fit with actual earnings results in coming quarters.
Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.