Fri. Jan 24th, 2020

Tailored Brands, Inc. (NYSE: TLRD)

48 min read

Tailored Brands, Inc. (NYSE: TLRD) reported its consolidated financial results for the fiscal 3rd-quarter finished November 2, 2k19.

For the 3rd-quarter finished November 2, 2k19, the Company reported GAAP earnings from continuing operations for each diluted share of $0.560 compared to earnings from continuing operations for each diluted share of $0.690 in the 3rd-quarter last year. Excluding the impact of certain items in both durations, 3rd-quarter 2k19 adjusted earnings from continuing operations for each diluted share(1) were $0.530 compared to adjusted earnings from continuing operations for each diluted share(1) of $0.950 last year.

3rd-quarter 2k19 pre-tax results include $6.20M of charges related to our multi-year cost savings and operational excellence programs consisting of $5.50M in consulting costs, $0.60M in severance costs and $0.10M in lease termination costs. In addition, we have reflected the results of the corporate apparel business, including the loss on the sale, as discontinued operations for all durations presented.

Net Sales

Total net sales declined 3.0 percent to $729.50M primarily due to a decline in comparable sales of 2.20 percent.

Comparable Sales

Men’s Wearhouse comparable sales declined 2.80 percent. Comparable sales for clothing declined due to a decline in average unit retail partially offset by an incline in both transactions and units for each transaction. Comparable rental services revenue declined 2.60 percent, primarily reflecting a tough comparison against the most popular wedding date of 2k18.

Jos. A. Bank comparable sales inclined 0.50 percent primarily due to an incline in both units for each transaction and transactions partially offset by a decline in average unit retail.

K&G comparable sales declined 1.50 percent primarily due to a decline in both units for each transaction and transactions partially offset by an incline in average unit retail.

Moores comparable sales declined 5.50 percent primarily due to a decline in both average unit retail and transactions while units for each transaction were essentially flat.

Gross Margin

On a GAAP basis, consolidated gross margin was $308.00M, a decline of $37.50M, primarily due to the decline in net sales. As a percent of sales, both total gross margin and adjusted total gross margin declined 380.0 basis points to 42.20 percent, primarily due to inclined promotional activities, as well as deleveraging of occupancy costs.

Advertising Cost

Advertising cost declined $3.10M to $34.00M primarily driven by reductions in television advertising reflecting a shift to more efficient online advertising, as well as the timing of marketing spend. As a percent of sales, advertising cost declined 20.0 basis points to 4.70 percent.

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

On a GAAP basis, SG&A declined $4.60M to $228.50M and inclined 30.0 basis points as a percent of sales. On an adjusted basis, SG&A declined $3.80M to $222.30M primarily due to lower employee-related benefit costs. As a percent of sales, adjusted SG&A inclined 40.0 basis points to 30.50 percent primarily due to deleveraging from lower sales.

Operating Income

On a GAAP basis, operating income was $45.50M compared to $75.30M last year and the operating margin declined 380.0 basis points. On an adjusted basis, operating income was $51.70M compared to $82.30M last year. As a percent of sales, the adjusted operating margin declined 380.0 basis points to 7.10 percent.

Net Interest Cost and Net Loss on Extinguishment of Debt

Net interest cost was $17.40M compared to $18.60M previous year. The decline in interest cost was due to the reduction of outstanding debt.

On a GAAP basis, net loss on the extinguishment of debt was $0.10M this year compared to $9.40M last year. This year’s net loss on extinguishment of debt resulted from the Company’s open market repurchases of senior notes. Last year’s net loss on extinguishment of debt resulted from the repricing of our term loan and consisted of the write-off of original issue discount and deferred financing costs. On an adjusted basis, there was a $0.10M net loss on the extinguishment of debt this year with no such loss last year.

Effective Tax Rate

On a GAAP basis, the effective tax rate was 0.90 percent compared to 26.50 percent last year. The decline in the effective tax rate was primarily driven by the net release of valuation allowances totalling $5.90M. On an adjusted basis, the effective tax rate was 23.10 percent compared to 24.40 percent last year.

Net Earnings and EPS

On a GAAP basis, net earnings from continuing operations were $27.80M compared to net earnings from continuing operations of $34.80M last year. Diluted EPS was $0.560 compared to diluted EPS of $0.690 last year.

On an adjusted basis, net earnings from continuing operations were $26.30M compared to net earnings from continuing operations of $48.20M last year. Adjusted diluted EPS was $0.530 compared to adjusted diluted EPS of $0.950 last year.

Balance Sheet Highlights

Cash and cash equivalents at the end of the 3rd-quarter of 2k19 were $21.20M, a decline of $35.10M compared to the end of the 3rd-quarter of 2k18 primarily due to 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 3rd-quarter of 2k19, there were $67.50M of borrowings outstanding on our revolving credit facility. Total liquidity at the end of the 3rd-quarter was $477.00M, comprised of availability on our revolving credit facility and cash and cash equivalents.

Inventories inclined $6.10M, or 0.80 percent, to $778.30M at the end of the 3rd-quarter of 2k19 compared to the end of the 3rd-quarter of 2k18.

Total debt at the end of the 3rd-quarter of 2k19 was approximately $1.10B, down $56.20M compared to the end of the 3rd-quarter of 2k18. Throughout the 3rd-quarter of 2k19, the Company repurchased and retired $54.80M in face value of its senior notes and made its scheduled $2.30M payment on its term loan, while borrowings on our revolving credit facility inclined $22.50M for seasonal working capital needs.

Cash flow from operating activities for the 9.0-months finished November 2, 2k19 was $65.60M compared to $277.80M last year. The decline was driven by lower net earnings after adjusting for non-cash items, fluctuations in accounts payable and accrued liabilities primarily due to timing, and anniversarying $15.00M of income tax refunds received in the 3rd-quarter last year.

Capital expenditures for the 9.0-months finished November 2, 2k19 were $63.40M compared to $46.90M last year. The Company expects capital expenditures for fiscal 2k19 of $90.00M to $95.00M.

Throughout the 3rd-quarter, the Company repurchased 2,336,852 shares through open market repurchases for $10.00M at an average price of $4.280 for each share, as part of a share repurchase program approved by the Board of Directors in March 2013. On November 2, 2k19, the remaining balance available under the Board’s authorization was $38.00M.

Q4 FISCAL 2k19 OUTLOOK

The Company’s outlook for the 4th-quarter of fiscal 2k19 related to continuing operations is as follows:

  • Earnings for each Share: The Company expects an adjusted diluted loss for each share in the range of ($0.500) to ($0.550).
  • Comparable Sales: The Company expects comparable sales for:
    • Men’s Wearhouse to be down 1.0 percent to up 1.0 percent
    • Jos. A. Bank to be down 1.0 percent to up 1.0 percent
    • K&G to be flat to up 2.0 percent
    • Moores to be down 6.0 percent to 8.0 percent.
  • Effective Tax Rate: The Company expects an effective tax rate of 22.00 percent to 23.00 percent.

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