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Lower-than-expected retail sales affect Men's Wearhouse second quarter


The Men's Wearhouse experienced a decline in customer traffic and a subsequent drop in retail clothing sales during the second quarter ended Aug. 3, and has lowered its guidance as a result.

"Retail clothing sales during the second quarter were below our internal plan as we experienced a decline in customer traffic compared to last year's second quarter. We believe this is primarily due to macro issues affecting the apparel retailing space," explained Doug Ewert, president and CEO. "Despite the difficult economic climate, we remain committed to our operating and capital allocation plans that were laid out earlier this year. Throughout the past six months we have improved financial flexibility, purchased the American designer brand Joseph Abboud and its U.S. manufacturing operations, and repurchased approximately $152 million of our shares; and we continue to evaluate strategic alternatives for our K&G operations.

In July, the company signed a definitive agreement to acquire JA Holding, Inc., the parent company of the American clothing brand, Joseph Abboud, for approximately $97.5 million in cash consideration, subject to certain adjustments. The transaction closed on Aug. 6 and was funded with the $100 million term loan available under the company's credit facility.

Total net sales for the quarter decreased 2.3% to $647.3 million from $662.3 million for the same prior year period. Retail segment sales for the quarter decreased by 1.9% or $11.2 million and corporate apparel sales decreased by 6.6% or $3.8 million as compared to the prior year quarter.

Net sales at core flagship brand Men's Wearhouse stores, which represented 66% of total second quarter sales were down 0.7% from last year's second quarter sales. Comparable store sales increased 0.7%, but were below internal expectations. The higher margin tuxedo rental revenues comparable store sales increased 0.4% in the quarter.

Moores, the Canadian retail brand, represented 12% of total second quarter sales, had a comparable store sales decrease of 4.9% due mainly to decreased average transactions per store and units sold per transaction that more than offset increased average unit retails. K&G represented 13% of the company's total second quarter sales and had a comparable store sales decrease of 3%.

The corporate apparel segment, which represented 8% of total second quarter sales, had a sales decrease of 6.6% due mainly to an expected lower level of customer-directed new uniform rollouts in the U.K.

The consolidated total gross margin was down 3.6% with the total gross margin rate decreasing 65 basis points primarily because of an Easter-related shift in tuxedo revenues and the deleveraging of occupancy costs. The retail segment total gross margin was down 3.4% and the corporate apparel gross margin decreased 6.1%.

The company remains confident about its merchandising and operating strategies, but citing concerns about "the current macro trends in the apparel industry," it is lowering its comp store growth assumptions by approximately 2% at Men's Wearhouse and Moores, resulting in a full year expectation of adjusted earnings per share of $2.40 to $2.50.

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