This summary is based on the fourth quarter fiscal 2006 earnings call conducted by The Men’s Wearhouse Inc. (MW: chart) on March 7, 2007.

Key Investors Issues

- Earnings per share were 95 cents compared to 60 cents in the prior year.
- Quarterly sales grew 12% over the previous year to $556.8 million.
- The company repurchased 764,600 shares for a total value of $28.8 million.

Fourth Quarter Fiscal 2006 Financial Highlights

The reported earnings per share for the fourth quarter increased to 95 cents from the prior year quarter of 60 cents.

The upside was driven by certain non-recurring items as well as better than expected ongoing operating results.

- Approximately 10 cents stems from a lower effective tax rate of 28.7% in the quarter versus the firm’s initial plan of 36%, lower effective tax rate, concerned adjustment tax reserves associated with favorable developments on certain income tax matters.
- The company follows the retail 454 fiscal calendar, which includes an extra week in the fourth quarter of fiscal 2006. The firm’s sales results for this extra week were up $31.7 million or 18% higher than the initial planned level of $26.9 million. These stronger results contributed 2 cents of this upside.
- The balance of this upside is reflection of ongoing operating results for the quarter.

Total company sales increased 12% over prior year to $556.8 million.

Apparel sales, representing 90.8% of total sales, increased 10.6%. Tuxedo rental revenues, representing 2.7% of total sales, increased 26.1%. Comparable store sales declined 1.5% for the firm’s United States based stores, below the firm’s expectation of an increase of 1% to 2%. This under planned performance is a reflection of soft traffic levels and what’s most noticeable in the tailored clothing categories.

On a two-year basis, comparable stores sales increased 4.6%. Comparable store sales increased 9% in its Canadian based stores and that was ahead of the firm’s initial guidance of being in the range of 2% to 4%. This above planned performance is a reflection of strong increases in both traffic levels and average tickets.

Gross margin for the quarter increased 331 basis points to 44.6% from 41.29%.

Above planned comparable store sales results in Canada, above planned maintained merchandise margins in both the United States and Canada when combined with a strong 53rd week of the year more than offset the impact of the company’s under planned comparable store sales results in the US.

K&G had the largest operating margin increase of the 3% primarily caused by a doubling of the direct sourcing and penetration.

At Moores, the firm’s margin is almost up as much as K&G’s and the firm has the additional benefit of enjoying the highest same store sales and operating income in the entire organization. Last year the firm did make a change in the marketing strategy and instead of running 60 second television commercials it ran 15 second commercials. This increased the gross rating points, increased the traffic and after experiencing in 2005 a traffic decline, the increase in traffic generated fantastic results.

In the firm’s flagship division Men’s warehouse stores, which represent two-thirds approximately of total sales, things continued to strengthen across many financial categories and metrics, including product margins and operating margins which both surpassed historical highs. Recent information from some vendors, competitors and national research organization indicate that tailor clothing may be struggling down in the single-digits therefore the firm’s numbers would suggest that its market share might be up. This is one reason why the company wants to continue to maintain and enhance its brand through its strategy of everyday low prices and few if any promotions. Regardless of the current economic trends and cycles, the firm continues to maintain its image.

Selling general administrative expenses as a percentage of sales increased 135 basis points to 31.46% from 30.11%.

This rate of increase was lower than the firm had anticipated and was due to lower advertising, lower payroll, and lower employee healthcare expenses. In January the firm completed the redemption of its $130 million convertible bond indebtedness. This will have a dilutive effect to net interest expense in fiscal 2007 as the cash interest coupon on the bond was less than the reinvestment right on excess cash reserves that were utilized to repay the bond.

- The effective tax rate of 28.7% was substantially lower than last year and the firm’s expectation due to adjustments to tax reserves.
- Weighted average diluted shares outstanding of 54.8 million were 1% higher than the prior year. However the diluted share count was approximately 500,000 lower than the firm’s plan for the quarter due to share repurchases of 764,600 shares, for a total value of $28.8 million. The firm has up to 60 million remaining in its share reauthorization.

- Total inventories increased 7.7% over the prior year quarter. Per store basis inventory growth was 3% and on per square foot basis, inventory decreased 1.1%.
- Depreciation amortization was $16.2 million for the quarter.
- Capital expenditures were $25 million.
- The firm opened a total of nine net new stores and expanded or relocated a total of eight stores, which resulted in a 2.2% increase in gross square footage for the quarter. In the year, the firm opened a total of 33 net new stores and expanded or relocated a total of 27 stores, representing an 8.9% increase in retail square footage

Fiscal 2007 Outlook