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Market Update Analysis: 
Men’s Wearhouse Fourth Quarter Earnings Call
Author: Albena Toncheva
123jump.com
Last Update: 8:11 AM EDT March 12 2007


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The clothing retailer reported that net sales grew 12% to $556.8 million while the same store sales fell 1.5%. The fall in the same store sales was the result of the decline in the traffic levels, due to softness in the tailored clothing market in the US. Men’s Wearhouse plans to complete the acquisition of After Hours Formalwear in the first half of fiscal 2007. The earnings per share in the fiscal 2007 are likely to be in the range of $2.89 to $3 compared to $2.62 in fiscal 2006.

 
The firm is anticipating 23% tuxedo rental growth for 2007. Is that from Canada? Is the growth due to price or units?

No, that’s a total number. It’s anywhere from 20% to 25% for the full year in tuxedo rentals. The growth is due to combination of both price and units

Do you expect the impending acquisition to be dilutive in the first year or the first 6 months you own it and then accretive in the following year?

The first order of the day is once the firm gets approval by the appropriate government agencies, it has a plan to integrate the 2 businesses. That will take the company to the better part of the first year of this exercise. The management believes that there will be up side for the shareholders in the following years. The management can only comment this much on this issue, because until this acquisition is approved, the firm does not have full access to information about this organization.

Were there any new national contracts won at TwinHill?

No.

You’re assuming 54.6 million shares for fiscal 2007. Does that include the redemption of the convertible shares that were announced recently?

Yes that’s all been done and any shares that were to be issued as the company redeems that are now reflected in basic share count. They’re no longer diluted shares.

You mentioned that cross marketing opportunities between MW Cleaners and Twin Hill and the other businesses was up and running. Could you comment on what cross marketing you’ve put in place and what you’re seeing from that?

The management doe not think that it has to worry about a competitor knocking it off on this but in Houston where the firm’s cleaners are operating, the firm has recently begun a program in which it advertises on radio that if you buy a suit or a sport coat or a pair of slacks at any Men’s Wearhouse store that we will dry clean them for free for a year. This idea was thought of by our dry cleaning person, not by Men’s Wearhouse even primary impact will probably be at Men’s Wearhouse stores he feels that when people come in to get a free cleaning, they will bring additional stuff and become a long term customer. It’s too new but that’s an example of what cross marketing ideas that the firm has.

In the US, can you talk about the penetration of the tuxedo business? How much it grew from 2005 to 2006 and what the outlook is for that business to level out at going forward?

The growth rate in the US was in the low 20’s. It’s a similar growth rate that the firm is expecting for 2007.

Did the fourth quarter take on the full absorption of the cost out of the new tuxedo warehouse? Or will there be some incremental costs in the first quarter from that start up ramp-up of that facility?

Yes, it is not fully absorbed in the fourth quarter. It will be fully absorbed as the firm goes into the fiscal year.
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