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| MW > SEC Filings for MW > Form 10-K on 1-Apr-2009 | All Recent SEC Filings |
1-Apr-2009
Annual Report
We also plan to apply a new store design which was tested in three K&G stores
during 2008 to approximately 80 additional K&G stores in the spring of 2009. The
new store design establishes a modern look and feel from the exterior entrance
of the store to the inside of the fitting rooms. We believe these new design
elements convey a more vibrant and energetic attitude for our customers.
In 2008, we closed two Men's Wearhouse stores due to substandard performance.
We also closed 20 Men's Wearhouse and Tux stores (formerly MW Tux): seven due to
substandard performance, one due to lease expiration and 12 due to consolidation
of operations with other existing Men's Wearhouse stores in the area. In 2007,
we closed 27 stores due to the integration of After Hours into our operations
and two Men's Wearhouse stores and one K&G store due to lease expirations. In
2006, two stores were closed due to lease expiration. We plan to close one Men's
Wearhouse store, two K&G stores and 11 Men's Wearhouse and Tux stores (formerly
MW Tux) in 2009. We also recorded non-cash asset impairment charges of
$1.8 million in 2008 related mainly to leasehold improvement assets for two
stores still in operation.
We expect general economic conditions to remain difficult in 2009. In
response to these challenges, we plan to continue to stimulate sales with deeper
discounts and other events, to manage our inventory purchases and to further
implement cost controls and operational changes to reduce expenses. We also
anticipate a significant reduction in store openings and other capital
expenditures in 2009 as compared to 2008 levels as indicated above. Based on our
experience with previous economic downturns, we believe long-term fundamentals
for the men's specialty apparel industry remain strong and that current negative
conditions will stabilize over time. However, we cannot predict when a
meaningful recovery will occur.
Results of Operations
The following table sets forth the Company's results of operations expressed
as a percentage of net sales for the periods indicated:
Fiscal Year
2008 2007 2006
Net sales
Clothing product 76.8 % 78.4 % 87.2 %
Tuxedo rental services 16.7 15.4 6.4
Alteration and other services 6.5 6.2 6.4
Total net sales 100.0 % 100.0 % 100.0 %
Cost of sales:
Clothing product, including buying and
distribution costs 34.1 33.6 39.5
Tuxedo rental services 3.0 2.9 1.4
Alteration and other services 4.9 4.7 4.7
Occupancy costs 14.9 12.9 11.1
Gross margin 43.1 45.9 43.3
Selling, general and administrative expenses 38.5 35.1 31.4
Operating income 4.6 10.8 11.9
Interest income 0.1 0.3 0.5
Interest expense (0.2 ) (0.2 ) (0.5 )
Earnings before income taxes 4.5 10.9 11.9
Provision for income taxes 1.5 3.9 4.0
Net earnings 3.0 % 7.0 % 7.9 %
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2008 Compared with 2007
The Company's net sales decreased $140.1 million, or 6.6%, to
$1,972.4 million for fiscal 2008 as compared to fiscal 2007. The decrease was
due mainly to a $140.5 million decrease in clothing product revenues, offset
partially by a $4.7 million increase in tuxedo rental service revenues and is
attributable to the following:
(in millions) Amount Attributed to
$ (170.7 ) Decrease in comparable sales.
23.5 Increase from net sales of stores opened in 2007, relocated stores and
expanded stores not yet included in comparable sales.
16.6 Increase in net sales from 43 new stores opened in 2008.
4.3 Increase from net sales of acquired After Hours stores, not included
in comparable sales until second quarter of 2008.
(6.0 ) Decrease in net sales resulting from stores closed.
(1.3 ) Decrease in alteration and other sales.
(6.5 ) Decrease in net sales resulting from exchange rate changes.
$ (140.1 ) Total
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Our comparable store sales (which are calculated by excluding the net sales
of a store for any month of one period if the store was not open throughout the
same month of the prior period) decreased 9.0% at Men's Wearhouse, 11.7% at K&G
and 5.6% at Moores. These decreases were primarily due to decreased clothing
product sales resulting from continued declines in traffic levels at all our
retail apparel brands. The recessionary trend of the U.S. economy that started
in late 2007 and a weakening Canadian economy continued to negatively impact
consumer spending during 2008, with sales of men's apparel being particularly
affected. Buying patterns for men are considered to be more discretionary than
those in other apparel areas. The lower clothing product sales were partially
offset by increased revenues from our tuxedo rental services due mainly to a
full year of rentals in 2008 from the After Hours stores acquired on April 9,
2007 and to higher average rental rates. As a percentage of total revenues,
tuxedo rental service revenues increased from 15.4% in 2007 to 16.7% in 2008.
The Company's gross margin was as follows:
Fiscal Year
2008 2007 2006
Gross margin $ 850,512 $ 970,057 $ 815,705
Gross margin as a percentage of related sales:
Clothing product, including buying and
distribution costs 55.6 % 57.2 % 54.7 %
Tuxedo rental services 82.0 % 81.0 % 78.0 %
Alteration and other services 24.1 % 24.1 % 27.0 %
Occupancy costs (14.9 )% (12.9 )% (11.1 )%
Total gross margin 43.1 % 45.9 % 43.3 %
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Buying and distribution costs are included in determining our clothing
product and total gross margins. Our gross margin may not be comparable to other
specialty retailers, as some companies exclude costs related to their
distribution network from cost of goods sold while others, like us, include all
or a portion of such costs in cost of goods sold and exclude them from selling,
general and administrative expenses.
Total gross margin decreased 12.3% from $970.1 in fiscal 2007 to
$850.5 million in fiscal 2008. As a percentage of sales, total gross margin
decreased from 45.9% in 2007 to 43.1% in 2008. This decrease is due mainly to
lower clothing product margins and an increase from 12.9% in 2007 to 14.9% in
2008 for occupancy cost, which is relatively constant on a per store basis and
includes store related rent, common area maintenance, utilities, repairs and
maintenance, security, property taxes and depreciation. On an absolute dollar
basis, occupancy cost increased by 7.9% from 2007 to 2008, due mainly to our
acquisition of After Hours and increased rental rates for new and renewed
leases. With respect to gross margin as a percentage of related sales, the
clothing product gross margin decreased from 57.2% in 2007 to 55.6% in 2008 due
primarily to higher markdowns from increased promotional activity at our Men's
Wearhouse and K&G stores. The tuxedo rental services gross margin increased from
81.0% in 2007 to 82.0% in 2008 due mainly to the absence in 2008 of a
$3.6 million charge taken in 2007 in connection with initial efforts to
establish a global merchandising assortment for the combined tuxedo rental
operations of After Hours and Men's Wearhouse. The gross margin for alteration
and other services remained the same in 2008 as in 2007 at 24.1% as increased
alteration sales in the fourth quarter of 2008 from our promotional events
offset decreased alteration margins caused by decreased clothing sales in 2008
and the related deleveraging of alteration service fixed costs.
Selling, general and administrative ("SG&A") expenses increased to $760.0 million in fiscal 2008 from $741.4 million in fiscal 2007, an increase of $18.6 million or 2.5%. As a percentage of sales, these expenses increased from 35.1% in 2007 to 38.5% in 2008. The components of this 3.4% net increase in SG&A expenses as a percentage of net sales and the related absolute dollar changes were as follows:
% Attributed to
0.4 % Increase in advertising expense as a percentage of sales from 3.5% in
2007 to 3.9% in 2008. On an absolute dollar basis, advertising expense
increased $3.2 million.
0.9 % Increase in store salaries as a percentage of sales from 14.0% in 2007
to 14.9% in 2008. Store salaries on an absolute dollar basis decreased
$2.2 million primarily due to decreased commissions and store
personnel due to decreased sales in 2008. This decrease more than
offset the increase in store salaries related to a full twelve months
of Men's Wearhouse and Tux (formerly After Hours) store salaries in
2008 versus 301 days in fiscal 2007.
0.5 % Increase in other SG&A expenses of $10.0 million in connection with
the July 11, 2008 closure of the Canadian based manufacturing facility
operated by the Company's subsidiary, Golden Brand.
(0.4 )% Decrease in other SG&A expenses of $8.8 million from the gain on sale
of certain distribution facility assets acquired by the State of
California through eminent domain in 2008.
0.1 % Increase in other SG&A expenses of $1.8 million for non-cash asset
impairment charges recorded in 2008 related to two stores still in
operation.
1.9 % Increase in other SG&A expenses as a percentage of sales from 17.6% in
2007 to 19.5% in 2008. On an absolute dollar basis, other SG&A
expenses increased $14.7 million primarily due to other SG&A expenses
associated with a full twelve months of Men's Wearhouse and Tux
(formerly After Hours) operations in 2008 versus 301 days in fiscal
2007.
3.4 % Total
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Interest expense decreased from $5.0 million in fiscal 2007 to $4.3 million
in fiscal 2008 while interest income decreased from $6.0 million in fiscal 2007
to $2.6 million in fiscal 2008. Weighted average borrowings outstanding
increased from $86.4 million in 2007 to $91.1 million in 2008, and the weighted
average interest rate on outstanding indebtedness decreased from 5.5% to 4.3%.
The increase in the weighted average borrowings resulted from borrowings under
our revolving credit facility, offset partially by payments made on our Canadian
term loan on October 22, 2008 of approximately US$31.9 million. Outstanding
borrowings under our revolving credit facility were $25.0 million at January 31,
2009 at an effective interest rate of 1.2%. The weighted average interest rate
for fiscal 2008 decreased mainly due to a decrease in the effective interest
rate for the Canadian term loan from 4.8% at February 2, 2008 to 1.9% at
January 31, 2009, offset partially by borrowings at a weighted average rate of
4.2% under our revolving credit facility during fiscal 2008. The decrease in
interest income was primarily attributable to lower average invested cash
balances and lower interest rates for fiscal 2008 as compared to fiscal 2007.
The average yield on our investments decreased due to changes in the investment
market and our shift to more conservative investments.
Our effective income tax rate was 36.0% for fiscal 2007 and 33.7% for fiscal
2008. The effective tax rate in 2007 was higher than the statutory U.S. federal
rate of 35% primarily due to the effect of state income taxes, offset by
favorable developments in certain outstanding income tax matters in the second
quarter of fiscal 2007. The effective income tax rate in 2008 was lower than the
statutory U.S. federal rate of 35% mainly because favorable conclusions of
certain income tax audits during the year more than offset the effect of state
income taxes. The concluded and settled income tax audits during 2008 resulted
in a cash payment of $2.2 million, of which $0.6 million was interest, and net
recognition of $1.4 million of previously unrecognized tax benefits and
$0.3 million of benefit from associated accrued interest. In addition,
$2.5 million of previously unrecognized tax benefits and $1.0 million of benefit
from associated accrued interest were recognized during 2008 as a result of
statute of limitation expirations and a change in estimate for prior year tax
positions. The amount of recognized tax benefits that affected the effective tax
rate was $3.3 million.
These factors resulted in 2008 net earnings of $58.8 million or 3.0% of net
sales, compared with 2007 net earnings of $147.0 million or 7.0% of net sales.
Supplemental Information
Fiscal 2008 compared to Pro Forma fiscal 2007
The consolidated statements of earnings included herein reflect the Company's
GAAP results of operations for fiscal 2007 and fiscal 2008. Since the
acquisition of After Hours occurred on April 9, 2007, the inclusion of its
off-season operations as if the acquisition had occurred prior to the beginning
of 2007 reduces diluted earnings per share for fiscal 2007 from $2.73 on a GAAP
basis to $2.57 on a pro forma basis and allows for a comparison of the 2008 and
2007 results on a comparable operations basis. The following table, expressed as
a percentage of net sales for the periods indicated, and comments that follow
are based on a comparison of the pro forma results for fiscal 2007 with the GAAP
results for fiscal 2008. Refer to Note 2 to Consolidated Financial Statements
for pro forma results of operations for fiscal 2007.
Pro Forma
Fiscal Year Fiscal Year
2008 2007
Net sales:
Clothing product 76.8 % 77.5 %
Tuxedo rental services 16.7 16.4
Alteration and other services 6.5 6.1
Total net sales 100.0 % 100.0 %
Cost of sales:
Clothing product, including buying and distribution costs 34.1 33.2
Tuxedo rental services 3.0 3.1
Alteration and other services 4.9 4.6
Occupancy costs 14.9 13.0
Gross margin 43.1 46.1
Selling, general and administrative expenses 38.5 36.0
Operating income 4.6 10.1
Interest income 0.1 0.3
Interest expense (0.2 ) (0.3 )
Earnings before income taxes 4.5 10.1
Provision for income taxes 1.5 3.6
Net earnings 3.0 % 6.5 %
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Total net sales decreased $170.1 million or 7.9% to $1,972.4 million in 2008
from $2,142.5 million for the pro forma fiscal year 2007. Clothing product
sales, representing 76.8% of 2008 total net sales, decreased 8.7% due primarily
to decreases in comparable store sales driven by a reduction in store traffic
levels. Tuxedo rental service sales, representing 16.7% of 2008 total net sales,
decreased 6.2%. This decline was primarily due to reduced tuxedo rental sales at
stores acquired from After Hours as well as the sale of the acquired wholesale
tuxedo rental operations in July 2007. These declines were partially offset by
increases in tuxedo rental service sales at the Men's Wearhouse stores and
higher average rental rates at the Men's Wearhouse and Moores stores.
Gross margin before occupancy costs, as a percentage of total net sales,
decreased from pro forma 59.1% in 2007 to 58.0% in 2008. Clothing product
margins as a percentage of related 2008 sales decreased 149 basis points while
tuxedo rental service margins increased 71 basis points from the pro forma
fiscal year 2007. Gross margin for alteration and other services remained
constant as a percentage of related 2008 sales as increased alteration sales in
the fourth quarter of 2008 related to our promotional events offset decreased
alteration margins caused by decreased clothing sales in 2008 and the related
deleveraging of fixed alteration service costs. Occupancy costs as a percentage
of total net sales increased by 189 basis points from pro forma 13.0% in 2007 to
14.9% in 2008 due to the deleveraging effect of reduced comparable store sales,
increased rental rates for new and renewed leases and increased depreciation
expense from the rebranding of After Hours stores to MW Tux.
Selling, general, and administrative expenses, as a percentage of total net
sales, increased 254 basis points from pro forma 36.0% in 2007 to 38.5% in 2008.
This increase was primarily due to the deleveraging effect of reduced net sales
in addition to $10.0 million of costs associated with the July 11, 2008 closure
of the Canadian based manufacturing facility operated by the Company's
subsidiary, Golden Brand, and the non-cash asset impairment charge of
$1.8 million recorded in 2008 related to two stores still in operation, offset
partially by an $8.8 million gain from the sale of certain distribution facility
assets acquired by the State of California through eminent domain in 2008.
These factors resulted in operating income of $90.5 million and net earnings
of $58.8 million in fiscal 2008 compared to pro forma operating income of
$215.6 million and net earnings of $138.4 million for fiscal 2007.
2007 Compared with 2006
The Company's net sales increased $230.5 million, or 12.3%, to
$2,112.6 million for 2007 due mainly to a $205.8 million increase in tuxedo
rental revenues, a $14.9 million increase in clothing product sales and a
$7.0 million increase in alteration service revenues. The components of this
$230.5 million increase in net sales are further detailed as follows:
(in millions) Amount Attributed to
$ 199.2 Revenues from acquired After Hours stores.
(3.0)% decrease and 1.5% increase in comparable sales for U.S. and
(40.0 ) Canadian stores, respectively.
(30.6 ) Impact of 53rd week in 2006 (based on trailing 52 weeks in 2006).
25.3 Increase in corporate apparel and other sales.
29.0 Net sales from 42 new stores opened in 2007.
Increase from net sales of stores opened in 2006, relocated stores
32.4 and expanded stores not included in comparable sales.
(3.1 ) Decrease in net sales resulting from stores closed.
18.3 Increase in net sales resulting from exchange rate changes.
$ 230.5 Total
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The increase of $205.8 million in tuxedo rental revenues was due to the After
Hours acquisition as shown above and a 17.8% increase in our existing tuxedo
rental operations in the U.S. and Canada. As a percentage of total revenues,
combined U.S. and Canadian tuxedo rental revenues increased from 6.3% in fiscal
2006 to 15.4% in fiscal 2007. Our comparable store sales (which are calculated
by excluding the net sales of a store for any month of one period if the store
was not open throughout the same month of the prior period) decreased 0.4% at
our Men's Wearhouse stores, while our K&G comparable store sales decreased
10.9%, resulting in a 3.0% decrease in comparable sales for our U.S. stores in
fiscal 2007. The decreases for the year were significantly influenced by results
for the fourth quarter of 2007, when comparable sales decreased by 5.4% and
17.2% for Men's Wearhouse and K&G stores, respectively. These decreases were
primarily due to declining traffic levels caused by the economic slowdown in the
U.S. that accelerated during the peak holiday selling season. In Canada,
comparable store sales increased 1.5% for the year but declined 7.3% in the
fourth quarter, also primarily as a result of reduced traffic levels during the
holiday selling season.
Our gross margin continued to increase as shown in the table below:
Fiscal Year
2007 2006 2005
Gross margin $ 970,057 $ 815,705 $ 697,135
Gross margin as a percentage of related sales:
Clothing product, including buying and
distribution costs 57.2 % 54.7 % 51.7 %
. . .
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