Tailored Brands said is transitioning toward marketing brands “that stand for more than just price,” using a multichannel approach.
In a Nutshell: While Tailored Brands’ second quarter results showed declines in sale and earnings, the company said it sees improvement on the horizon.
“While our Q2 results and Q3 guidance reflect what we’ve previously shared about the need to transform our customer experience and the fact that transformations take time, the early signs of customer response to our strategies indicate that we are making healthy progress on our journey,” Dinesh Lathi, president and CEO, said.
The company noted that advertising expense decreased $5.5 million to $33.2 million, primarily driven by reductions in television advertising that reflected a shift to digital advertising, as well as the timing of marketing spend. As a percent of sales, advertising expense decreased 50 basis points to 4.2 percent.
Reductions were also seen in selling, general and administrative expenses (SG&A), which declined $2.3 million to $240 million and increased 100 basis points as a percentage of sales.
On the other hand, inventories increased 7.7 percent to $847 million at the end of the quarter, compared the same period in 2018. The increase was primarily driven by higher levels of raw materials, including fabric in support of basic, replenishment product.
The company’s outlook for the third quarter was for comparable sales at Men’s Wearhouse to be down 3 percent to 5 percent, Jos. A. Bank to be down 2 percent to 4 percent, K&G to be off 2 percent to 4 percent, and Moores to be off 4 percent to 6 percent.
The outlook excludes expected costs for third party domain experts and other actions associated with its cost savings and operational excellence programs.
The company expects net closures of seven stores across Men’s Wearhouse and Jos. A. Bank. At the end of the quarter, Tailored Brands operated 729 Men’s Wearhouse units compared to 719 a year earlier, and 476 Jos. A Bank stores compared to 487 last year.
Sales: Net sales for the second quarter ended Aug. 3 decreased 4.1 percent to $789.5 million. Retail net sales were down 4.1 percent primarily due to a decrease in retail segment comp sales of 3.6 percent, the company said. Corporate apparel net sales fell 3.9 percent, mainly impacted by a weaker British pound compared to last year.
Men’s Wearhouse comp sales decreased 4.3 percent. Comparable sales for clothing fell on a decrease in transactions, average unit retail and units per transaction. Comp rental services revenue was off 3.1 percent, which the company said reflected the continuing trend to purchase suits for special occasions.
Jos. A. Bank comp sales fell 3.3 percent, primarily from a decrease in average unit retail, partially offset by an increase in transactions and units per transaction. K&G comp sales were down 1.3 percent due to a decrease in units per transaction and transactions partially offset by an increase in average unit retail. Moores comp sales declined 2.5 percent.
Earnings: Net earnings were down 30.3 percent to $34.3 million compared to net earnings of $49.2 million in the year-ago period. Operating income fell 31.1 percent to $60.6 million compared to $88 million last year and operating margin decreased 300 basis points.
Gross margin was $333.7 million, a decrease of $35.2 million, primarily due to a decline in net sales. As a percent of sales, gross margin decreased 250 basis points to 42.3 percent.
CEO’s Take: “We were pleased to deliver second quarter comparable sales in line with our guidance and adjusted earnings per share above our guidance,” Lathi said. “We are also seeing early customer response to our initiatives, which gives us confidence that unleashing the potential for this business to generate healthy positive comps lies in our transformational strategies of providing personalized products and services, inspiring and seamless experiences in and across every channel, and brands that stand for more than just price.”
Continuing, he said, “On our year-end call, we indicated that we had work ahead of us to transform our customer-facing experience to one that can generate sustainable and profitable growth. We also said that, while we transform the experience, we would execute and invest in a focused manner with a clear goal of continuing to generate cash that we would deploy responsibly.”