NEW YORK – Strong results in Canada and in its burgeoning formalwear business helped Men’s Wearhouse overcome weak tailored clothing activity and blast past both analysts’ expectations for first quarter profits and its own.
In the three months ended May 5, net income soared 41.9% to $40.9 million, or $0.75 a diluted share, from $28.9 million, or $0.53, in the year-ago quarter. Since MW said last month that its quarterly profit would be on the low side of its estimate of between $0.63 and $0.67, analysts had trimmed their median approximations to $0.64.
Net sales were up 14.2% to $496.1 million from $434.6 million in the 2006 quarter. They rose 5.4% at MW, to $303.8 million; 9.9% at K&G, to $110 million; and 12.6% at Moores, to $45.3 million.
US comparable-store sales were down 1.3%, below MW’s estimate of a 1% to 2% gain, as slower traffic lowered tailored clothing sales at both its Men’s Wearhouse and K&G divisions. Comps were off 6.2% at K&G but up 0.3% at MW.
However, comps, measured in Canadian dollars, were up 5.8% at the Moores division.
MW, which completed its acquisition of After Hours from Federated Department Stores (now Macy’s Group) on 9 April, didn’t include After Hours in its comp calculation, but net sales for the division were consolidated for its month as an MW property. That helped lift tuxedo rental revenues, representing 12.1% of sales, 137.6% during the quarter, although a more modest 34.2% without After Hours revenues.
The swing towards tuxedo rentals also helped lift gross margin 354 basis points to 45.6% of sales from 42.1% a year ago.
After Hours is expected to add $0.15 to $0.17 in earnings per diluted share during the second quarter, as well as $80 million to $85 million in revenues. Earnings per share in the quarter are now expected to reach $0.88 to $0.92. Even subtracting the After Hours contribution, the guidance exceeds the current consensus estimate of $0.70.
Full-year earnings are expected to reach $2.84 to $2.94 a diluted share, while expectations for US comps are down 1% to flat, a reduction from the previous estimate of 1% to 2% based on the weakness of tailored clothing.
George Zimmer, chairman and chief executive officer of the Houston-based specialty retailer, commented, “With the combination of 509 AH stores and MW’s existing stores, we are now the leading retailer for the rental of men’s formalwear with over 1100 stores in the United States and Canada. We are sharply focused on capturing the synergistic potential of this acquisition and thereby enhancing shareholder value.
“Our current priority for the balance of this fiscal year is to complete the operation integration of AH with MW by the end of December 2007 in order to realize maximum synergies in our business model beginning in 2008,” the CEO added.
He identified the formulation of a branding strategy for AH, developing a common inventory assortment and the assimilation of store support services as the key components of the integration plan.
At the end of the quarter, MW operated 1267 stores – 544 Men’s Wearhouse stores, 509 After Hours units, 116 Moores shops and 98 K&G doors.
The company issued its earnings report after the close of the equity markets on Tuesday.