Tailored Brands, Inc. Reports Fiscal 2019 Second Quarter Results
Source: Business Wire
Q2 2019 GAAP diluted EPS of $0.68 and adjusted diluted EPS(1) of $0.82
Company expects Q3 2019 adjusted diluted EPS(1) of $0.40 to $0.45
Company to redeploy capital to accelerated debt repayment and share repurchases; suspends quarterly cash dividend starting in Q4 2019
Tailored Brands, Inc. (NYSE: TLRD) today announced consolidated financial results for the fiscal second quarter ended August 3, 2019.
For the second quarter ended August 3, 2019, the Company reported GAAP diluted earnings per share of $0.68 and adjusted diluted earnings per share(1) of $0.82, compared to GAAP diluted earnings per share of $0.97 and adjusted diluted earnings per share(1) of $1.07 last year.
Second quarter 2019 results exclude net charges of $10.4 million comprised of $11.3 million of charges related to our multi-year cost savings and operational excellence programs (consisting of $6.1 million in consulting costs, $2.9 million related to the closure of a distribution center in Canada, $2.2 million in severance costs and $0.1 million in lease termination costs), offset by a $0.9 million net favorable adjustment primarily related to a derivative instrument entered into for the corporate apparel business.
“We were pleased to deliver second quarter comparable sales in line with our guidance and adjusted earnings per share above our guidance,” said Tailored Brands President and CEO Dinesh Lathi. “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 i) personalized products and services, ii) inspiring and seamless experiences in and across every channel, and iii) brands that stand for more than just price.”
Lathi added, “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. Our sale of the corporate apparel business is consistent with our commitment to focused execution and investment. The Board of Directors’ unanimous decision to suspend the quarterly cash dividend for reallocation to debt repayment and share repurchases is consistent with our commitment to responsible allocation of capital. And 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.”
__________________________
(1)
In the second quarter of fiscal 2019, adjusted items consist of $11.3 million in costs related to our multi-year cost savings and operational excellence programs including consulting, the closure of a distribution center in Canada, severance and lease termination costs, offset by a $0.9 million net favorable adjustment primarily related to a derivative instrument entered into for the corporate apparel business. In the second quarter of fiscal 2018, adjusted items consist of a loss on extinguishment of debt related to the partial redemption of $175 million of the Company’s senior notes, costs related to the closure of a rental product distribution center and an unfavorable final working capital adjustment related to the divestiture of the MW Cleaners business. See Use of Non-GAAP Financial Measures for additional information on items excluded from adjusted EPS for the second quarter of fiscal 2019 and with respect to the Company’s outlook for the third quarter of fiscal 2019.
Second Quarter Fiscal 2019 Results
Net Sales Summary(1)
Net Sales
% Total Sales
Comparable Sales
(U.S. dollars in millions)
Change
Change(2)
Retail
$
736.1
(4.1)%
(3.6)
%
Men's Wearhouse
$
423.5
(4.9)%
(4.3)
%
Jos. A. Bank
$
166.1
(3.7)%
(3.3)
%
K&G
$
82.7
(1.1)%
(1.3)
%
Moores(3)
$
63.9
(4.1)%
(2.5)
%
Corporate Apparel
$
53.3
(3.9)%
Total Company
$
789.5
(4.1)%
__________________________
(1)
Amounts may not sum due to rounded numbers.
(2)
Comparable sales is defined as net sales from stores open at least 12 months at period end and includes e-commerce sales.
(3)
The Moores comparable sales change is based on the Canadian dollar.
Net Sales
Total net sales decreased 4.1% to $789.5 million. Retail net sales decreased 4.1% primarily due to a decrease in retail segment comparable sales of 3.6%. Corporate apparel net sales decreased 3.9%, or $2.2 million, primarily due to the impact of a weaker British pound this year compared to last year.
Comparable Sales
Men’s Wearhouse comparable sales decreased 4.3%. Comparable sales for clothing decreased due to a decrease in transactions, average unit retail and units per transaction. Comparable rental services revenue decreased 3.1%, primarily reflecting the continuing trend to purchase suits for special occasions.
Jos. A. Bank comparable sales decreased 3.3% primarily from a decrease in average unit retail partially offset by an increase in both transactions and units per transaction.
K&G comparable sales decreased 1.3% primarily due to a decrease in both units per transaction and transactions partially offset by an increase in average unit retail.
Moores comparable sales decreased 2.5% primarily due to a decrease in both transactions and average unit retail partially offset by an increase in units per transaction.
Gross Margin
On a GAAP basis, consolidated gross margin was $333.7 million, a decrease of $35.2 million, primarily due to the decrease in net sales. As a percent of sales, consolidated gross margin decreased 250 basis points to 42.3%. On an adjusted basis, consolidated gross margin decreased 260 basis points to 42.6% primarily due to a lower retail gross margin rate.
On a GAAP basis, retail gross margin was $319.1 million, a decrease of $34.9 million. As a percent of sales, retail gross margin decreased 270 basis points to 43.4%. On an adjusted basis, retail gross margin decreased $35.9 million and the retail gross margin rate decreased 290 basis points to 43.7%, primarily due to increased promotional activities, as well as deleveraging of occupancy costs.
Advertising Expense
Advertising expense decreased $5.5 million to $33.2 million primarily driven by reductions in television advertising reflecting 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%.
Selling, General and Administrative Expenses (“SG&A”)
On a GAAP basis, SG&A decreased $2.3 million to $240.0 million and increased 100 basis points as a percent of sales. On an adjusted basis, SG&A decreased $9.3 million to $232.5 million primarily due to lower incentive and share-based compensation. As a percent of sales, adjusted SG&A was flat at 29.4% primarily due to deleveraging from lower sales.
Operating Income
On a GAAP basis, operating income was $60.6 million compared to $88.0 million last year and operating margin decreased 300 basis points. On an adjusted basis, operating income was $71.0 million compared to $92.5 million last year. As a percent of sales, adjusted operating margin decreased 220 basis points to 9.0%.
Net Interest Expense and Net Loss on Extinguishment of Debt
Net interest expense was $18.1 million compared to $20.7 million last year. The decrease in interest expense was due to the reduction of our outstanding debt.
On a GAAP basis, there was no net loss on extinguishment of debt this year compared to an $8.1 million loss on extinguishment of debt last year. Last year’s net loss on extinguishment of debt consisted of the 3.5% premium on the $175 million partial redemption of the Company’s senior notes as well as the write-off of related deferred financing costs. On an adjusted basis, there was no net loss on extinguishment of debt this year or last year.
Effective Tax Rate
On a GAAP basis, the effective tax rate was 19.4% compared to 16.7% last year. On an adjusted basis, the effective tax rate was 21.2% compared to 23.9% last year.
Net Earnings and EPS
On a GAAP basis, net earnings were $34.3 million compared to net earnings of $49.2 million last year. Diluted EPS was $0.68 compared to diluted EPS of $0.97 last year.
On an adjusted basis, net earnings were $41.7 million compared to net earnings of $54.6 million last year. Adjusted diluted EPS was $0.82 compared to adjusted diluted EPS of $1.07 last year.
Balance Sheet Highlights
Cash and cash equivalents at the end of the second quarter of 2019 were $19.5 million, a decrease of $48.7 million compared to the end of the second quarter of 2018 primarily due to the decrease in sales and the use of cash on hand for costs related to our multi-year cost savings and operational excellence programs and debt reduction. At the end of the second quarter of 2019, there were $45.0 million of borrowings outstanding on our revolving credit facility. Total liquidity at the end of the second quarter was $421.3 million, comprised of availability on our revolving credit facility and cash and cash equivalents.
Inventories increased $60.4 million, or 7.7%, to $847.0 million at the end of the second quarter of 2019 compared to the end of the second quarter of 2018. The increase was primarily driven by higher levels of raw materials including fabric in support of basic, replenishment product.
Total debt at the end of the second quarter of 2019 was approximately $1.2 billion, down $61.7 million compared to the end of the second quarter of 2018. During the second quarter of 2019, the Company made its scheduled $2.3 million payment on its term loan and repaid $3.5 million on its revolving credit facility.
Cash flow from operating activities for the six months ended August 3, 2019 was $33.3 million compared to $198.0 million last year. The decrease was driven by lower net earnings after adjusting for non-cash items, an increase in inventories, and fluctuations in accounts payable and accrued liabilities primarily due to timing.
Capital expenditures for the six months ended August 3, 2019 were $39.1 million compared to $24.6 million last year.
Sale of Corporate Apparel Business
As previously announced, on August 16, 2019, the Company closed the sale of its corporate apparel business for total cash consideration of $62 million, subject to certain working capital adjustments. The Company will use cash proceeds from the transaction to reinvest in its business in accordance with the provisions of its term loan. This will free up funds previously slated for capital expenditures for debt reduction. The Company expects to present the sale as a discontinued operation beginning in the third quarter of fiscal 2019.
Capital Allocation Policy Update
After extensive review, the Board of Directors approved an update to the Company’s capital allocation policy. Effective in the fourth quarter, the Company’s quarterly cash dividend will be suspended and redeployed for accelerated debt repayment and share repurchases. This does not impact the previously approved quarterly cash dividend of $0.18 per share payable on September 27, 2019, to shareholders of record at the close of business on September 17, 2019.
Suspending the quarterly cash dividend of $0.18 per share is expected to make available approximately $36.5 million on an annualized basis. The Company has $48.0 million available for share repurchases under its previously authorized 2013 share repurchase program.
Q3 FISCAL 2019 OUTLOOK
The Company’s outlook for the third quarter of fiscal 2019 is as follows:
Earnings per Share: The Company expects to achieve adjusted diluted EPS in the range of $0.40 to $0.45, excluding the impact of any share repurchases.
Comparable Sales: The Company expects comparable sales for:
Men’s Wearhouse to be down 3% to 5%
Jos. A. Bank to be down 2% to 4%
K&G to be down 2% to 4%
Moores to be down 4% to 6%.
Effective Tax Rate: The Company expects an effective tax rate of 23% to 24%.
Real Estate: The Company expects net closures of seven stores, across Men’s Wearhouse and Jos. A. Bank.
The Company’s outlook excludes expected costs for third party domain experts and other actions associated with its cost savings and operational excellence programs.
STORE INFORMATION
August 3, 2019
August 4, 2018
February 2, 2019
Number
Sq. Ft.
Number
Sq. Ft.
Number
Sq. Ft.
of Stores
(000's)
of Stores
(000's)
of Stores
(000's)
Men's Wearhouse(a)
720
4,038.8
719
4,036.3
720
4,035.5
Men's Wearhouse and Tux
45
66.3
49
73.3
46
68.8
Jos. A. Bank(b)
476
2,244.4
487
2,293.7
484
2,280.2
K&G(c)
88
2,028.4
88
2,028.4
88
2,028.4
Moores
126
787.4
126
787.5
126
787.4
Total
1,455
9,165.3
1,469
9,219.2
1,464
9,200.3
__________________________
(a)
Includes one Joseph Abboud store.
(b)
Excludes 14 franchise stores.
(c)
84 stores offering women’s apparel at the end of each period, respectively.
Conference Call and Webcast Information
At 5:00 p.m. Eastern time on Wednesday, September 11, 2019, management will host a conference call and webcast to discuss fiscal 2019 second quarter results. To access the conference call, please dial 201-689-8029. To access the live webcast, visit the Investor Relations section of the Company’s website at http://ir.tailoredbrands.com. A webcast archive will be available free on the website for approximately 90 days.
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