Fri. Nov 15th, 2019

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TLRD: Tailored Brands, Inc. (NYSE: TLRD)

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Tailored Brands, Inc. (NYSE: TLRD) recently stated merged financial results for the fiscal 2nd-quarter finished August 3, 2k19.

  • Q2 2k19 GAAP diluted EPS of $0.680 and adjusted diluted EPS(1) of $0.820
  • Company anticipates Q3 2k19 adjusted diluted EPS(1) of $0.400 to $0.450
  • Company to redeploy capital to accelerated debt repayment and share repurchases; suspends quarterly cash dividend starting in Q4 2k19

For the 2nd-quarter finished August 3, 2k19, the Company stated GAAP diluted earnings for each share of $0.680 and adjusted diluted earnings for each share(1) of $0.820, contrast to GAAP diluted earnings for each share of $0.970 and adjusted diluted earnings for each share(1) of $1.070 previous year.

2nd-quarter 2k19 results exclude net charges of $10.40M comprised of $11.30M of charges related to our multi-year cost savings and operational excellence programs (consisting of $6.10M in consulting costs, $2.90M related to the closure of a distribution center in Canada, $2.20M in severance costs and $0.10M in lease termination costs), offset by a $0.90M net favourable adjustment mainly related to a derivative instrument reached for the corporate apparel business.

Net Sales

Total net sales reduced 4.10 percent to $789.50M. Retail net sales reduced 4.10 percent mainly because of a decline in retail segment comparable sales of 3.60 percent. Corporate apparel net sales reduced 3.90 percent, or $2.20M, mainly because of the impact of a weaker British pound this year contrast to last year.

Comparable Sales

Men’s Wearhouse comparable sales reduced 4.30 percent. Comparable sales for clothing reduced because of a decline in transactions, average unit retail and units for each transaction. Comparable rental services revenue reduced 3.10 percent, mainly reflecting the continuing trend to purchase suits for special occasions.

Jos. A. Bank comparable sales reduced 3.30 percent mainly from a decline in average unit retail partially offset by a boost in both transactions and units for each transaction.

K&G comparable sales reduced 1.30 percent mainly because of a decline in both units for each transaction and transactions partially offset by a boost in average unit retail.

Moores comparable sales reduced 2.50 percent mainly because of a decline in both transactions and average unit retail partially offset by a boost in units for each transaction.

Gross Margin

On a GAAP basis, merged gross margin was $333.70M, a decline of $35.20M, mainly because of the decline in net sales. As a percent of sales, merged gross margin reduced 250 basis points to 42.30 percent. On an adjusted basis, merged gross margin reduced 260 basis points to 42.60 percent mainly because of a lower retail gross margin rate.

On a GAAP basis, retail gross margin was $319.10M, a decline of $34.90M. As a percent of sales, retail gross margin reduced 270 basis points to 43.40 percent. On an adjusted basis, retail gross margin reduced $35.90M and the retail gross margin rate reduced 290 basis points to 43.70 percent, mainly because of raised promotional activities, in addition to deleveraging of occupancy costs.

Advertising Cost

Advertising cost reduced $5.50M to $33.20M mainly driven by reductions in television advertising reflecting a shift to digital advertising in addition to the timing of marketing spend. As a percent of sales, advertising cost reduced 50 basis points to 4.20 percent.

Selling, General and Administrative Costs (“SG&A”)

On a GAAP basis, SG&A reduced $2.30M to $240.00M and raised 100 basis points as a percent of sales. On an adjusted basis, SG&A reduced $9.30M to $232.50M mainly because of lower incentive and share-based compensation. As a percent of sales, adjusted SG&A was flat at 29.40 percent mainly because of deleveraging from lower sales.

Operating Income

On a GAAP basis, operating income was $60.60M contrast to $88.00M last year and operating margin reduced 300 basis points. On an adjusted basis, operating income was $71.00M contrast to $92.50M previous year. As a percent of sales, adjusted operating margin reduced 220 basis points to 9.0 percent.

Net Interest Cost and Net Loss on Extinguishment of Debt

Net interest cost was $18.10M contrast to $20.70M previous year. The decline in interest cost was because of the reduction of our outstanding debt.

On a GAAP basis, there was no net loss on extinguishment of debt this year contrast to an $8.10M loss on extinguishment of debt last year. Last year’s net loss on extinguishment of debt consisted of the 3.50 percent premium on the $175.00M partial redemption of the Company’s senior notes in addition to the write-off of related deferred financing costs. On an adjusted basis, there was no net loss on extinguishment of debt this year or previous year.

Effective Tax Rate

On a GAAP basis, the effective tax rate was 19.40 percent contrast to 16.70 percent previous year. On an adjusted basis, the effective tax rate was 21.20 percent contrast to 23.90 percent previous year.

Net Earnings and EPS

On a GAAP basis, net earnings were $34.30M contrast to net earnings of $49.20M previous year. Diluted EPS was $0.680 contrast to diluted EPS of $0.970 previous year.

On an adjusted basis, net earnings were $41.70M contrast to net earnings of $54.60M last year. Adjusted diluted EPS was $0.820 contrast to adjusted diluted EPS of $1.070 previous year.

Balance Sheet Highlights

Cash and cash equivalents at the end of the 2nd-quarter of 2k19 were $19.50M, a decline of $48.70M contrast to the end of the 2nd-quarter of 2k18 mainly because of the decline 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 2nd-quarter of 2k19, there were $45.00M of borrowings outstanding on our revolving credit facility. Total liquidity at the end of the 2nd-quarter was $421.30M, comprised of availability on our revolving credit facility and cash and cash equivalents.

Inventories raised $60.40M, or 7.70 percent, to $847.00M at the end of the 2nd-quarter of 2k19 contrast to the end of the 2nd-quarter of 2k18. The incline was mainly driven by higher levels of raw materials counting fabric in support of basic, replenishment product.

Total debt at the end of the 2nd-quarter of 2k19 was about $1.20B, down $61.70M contrast to the end of the 2nd-quarter of 2k18. During the 2nd-quarter of 2k19, the Company made its planned $2.30M payment on its term loan and repaid $3.50M on its revolving credit facility.

Cash flow from operating activities for the six months finished August 3, 2k19 was $33.30M contrast to $198.00M previous year. The decline was driven by lower net earnings after adjusting for non-cash items, a boost in inventories, and fluctuations in accounts payable and accrued liabilities mainly because of timing.

Capital expenditures for the six months finished August 3, 2k19 were $39.10M contrast to $24.60M previous year.

Sale of Corporate Apparel Business

As previously declared, on August 16, 2k19, the Company closed the sale of its corporate apparel business for total cash consideration of $62.00M, 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 formerly slated for capital expenditures for debt reduction. The Company anticipates to present the sale as a suspended operation starting in the 3rd-quarter of fiscal 2k19.

Capital Allocation Policy Update

After extensive review, the Board of Directors approved an update to the Company’s capital allocation policy. Effective in the 4th-quarter, the Company’s quarterly cash dividend will be suspended and redeployed for accelerated debt repayment and share repurchases. This does not impact the formerly approved quarterly cash dividend of $0.180 for each share payable on September 27, 2k19, to shareholders of record at the close of business on September 17, 2k19.

Suspending the quarterly cash dividend of $0.180 for each share is expected to make available about $36.50M on an annualized basis. The Company has $48.00M available for share repurchases under its formerly authorized 2013 share repurchase program.

Q3 FISCAL 2k19 OUTLOOK

The Company’s outlook for the 3rd-quarter of fiscal 2k19 is as follows:

  • Earnings for each Share: The Company anticipates to achieve adjusted diluted EPS in the range of $0.400 to $0.450, apart from the impact of any share repurchases.
  • Comparable Sales: The Company anticipates comparable sales for:
    • Men’s Wearhouse to be down 3.0 percent to 5.0 percent
    • Jos. A. Bank to be down 2.0 percent to 4.0 percent
    • K&G to be down 2.0 percent to 4.0 percent
    • Moores to be down 4.0 percent to 6.0 percent.
  • Effective Tax Rate: The Company anticipates an effective tax rate of 23.00 percent to 24.00 percent.

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