Increase in clothing product revenues at Men's Wearhouse
The Men's Wearhouse announced its consolidated financial results for the third quarter ended October 30, 2010.
During the third quarter of 2010, the Company changed the inventory valuation method used by its K&G brand from lower of cost or market, as determined by the retail inventory method, to lower of cost or market using the weighted average cost method. This change was done to bring all retail operations of the Company to a common valuation methodology platform. All financial statements in this press release have been revised to reflect this change and are therefore comparable. Prior year third quarter revised GAAP diluted earnings per share were $0.36, a decrease of $0.01 per share.
Third quarter review
Dimensions and Alexandra Acquisitions
On August 6, 2010, the Company acquired Dimensions and certain assets of Alexandra, two leading providers of corporate clothing uniforms and workwear in the United Kingdom, for total cash consideration of approximately pounds Sterling 61 million (US$97.8 million). The combined businesses are organized under a UK-based holding company of which Men's Wearhouse controls 86% and certain existing shareholders of Dimensions control 14%.
The financial results of the combined UK operations, excluding transaction and integration costs, were $0.03 accretive to the Company's third quarter diluted earnings per share. Transaction and integration costs were $1.4 million ($1.1 million after tax or $0.02 per diluted share outstanding). Total sales of the combined operations were US$51 million.
Tuxedo Distribution Closures
In late August 2010, a decision was made by the Company to cease tuxedo distribution operations in November 2010 at four of the eleven facilities that we currently use for tuxedo distribution. The operations at these four facilities will be assumed by other tuxedo distribution facilities in our system allowing us to more effectively manage our tuxedo rental operations. In the third quarter, a charge of $2.0 million ($1.5 million after tax or $0.03 per diluted share outstanding) was incurred consisting primarily of severance payments and fixed asset write-offs.
The expected ongoing annual benefit, beginning in fiscal 2011, as a result of these closures will be a reduction in operating costs of approximately $4.0 million.
Review of Results
Total Company sales increased 19.1% for the quarter.
• Retail segment net sales increased $36.3 million, or 7.9%, to $494.6 million for the quarter ended October 30, 2010 as compared to the same prior year quarter. The increase was due mainly to a $20.1 million increase in clothing product revenues and a $13.6 million increase in tuxedo rental service revenue:
o The increase of 9.6% in comparable store sales at Men's Wearhouse/Men's Wearhouse and Tux and 5.6% at Moores was due mainly to continued unit growth in our tuxedo rental services business, increased units per transaction and higher store traffic levels, which more than offset a decrease in the average transaction value. At K&G, the decrease of 0.2% in comparable store sales was due mainly to a decrease in the average transaction value.