Men’s Wearhouse misses mark, bets on back half

HOUSTON — The Men’s Wearhouse raised prices to preserve margins in the face of weak first quarter demand, but it wasn’t enough to prevent profits from falling short of estimates.



The company reported first quarter earnings per share of 52 cents, below guidance of 53 cents to 54 cents a share provided when the company reported fourth quarter results on March 7. Analysts’ expected the company to earn 55 cents a share.



The company’s sales also fell short of analysts’ estimates and company guidance. Sales increased 1.1% to $586.6 million, below company guidance that called for an increase in the range of 2% to 2.5%. Same store sales at the flagship Men’s Wearhouse division increased 3.8% on top of a challenging prior year increase of 10.8%, while the smaller K&G stores division saw same-store sales decline 4% on top of a prior year increase of 9.3%. Same stores sales at stores in Canada that operate under the Moores banner increased 7.1%.



The company said the gain at Men’s Wearhouse stores was the result of an increase in the average unit selling price that more than offset a decline in the number of transactions and the number of items purchased per transaction. At K&G, the opposite situation occurred where the sales decline was caused by lower average selling prices that weren’t offset by an increase in the number and size of transactions.



The sales shortfall at the K&G stores was the primary driver of the earnings miss which sent shares of the company sharply lower on Thursday morning.



Despite disappointing the market, Men’s Wearhouse maintained it full year profit forecast and expects to regain lost ground during the second half of the year.



“Regarding our financial outlook, we are reaffirming our fiscal year 2012 earnings per share guidance of $2.70 to $2.78,” CFO Neill Davis said during a conference call after the market closed Wednesday. “Although we are lowering our expectations for K&G, we are planning offsetting increases from additional investments in our television marketing campaign in support of the modern fit fashion trend and from other focused merchandise program changes at our Men’s Wearhouse stores that we expect to be additive to previous estimates.”



The heightened optimism at Men’s Wearhouse stores relates to efforts to position the brand more effectively with younger shoppers.



“Towards the end of the first quarter, we launched a new TV creative for Men’s Wearhouse and Moores that position our stores as a destination for modern dressing and encourages brand consideration among a younger and more trend-sensitive demographic,” said president and CEO Doug Ewart. “The feedback from customers has been very positive, and I believe this creative is among the most effective and timely that we have ever produced.”



Ewart noted cross-channel integration efforts include in-store graphics, online content, e-mail campaigns and a social media contest that utilizes gaming mechanics to encourage customer engagement.



“This multichannel initiative is producing intended results, including an increase in the number of new customers shopping in our stores and further growth in the number of previous tuxedo rental customers who convert to retail,” Ewart said.



The company ended the quarter with 1,162 stores consisting of 661 Men’s Wearhouse stores, 336 Men’s Wearhouse and Tux stores, 117 Moores locations in Canada and 98 K&G stores.