Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended April, 28, 2012

 

or

 

o                   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from           to            

 

Commission file number 1-16097

 

THE MEN’S WEARHOUSE, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Texas

 

74-1790172

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification Number)

 

 

 

6380 Rogerdale

 

 

Houston, Texas

 

77072-1624

(Address of Principal Executive Offices)

 

(Zip Code)

 

(281) 776-7000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x. No o.

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x. No o.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o. No x.

 

The number of shares of common stock of the Registrant, par value $.01 per share, outstanding at May 29, 2012 was 50,920,144 excluding 21,316,347 shares classified as Treasury Stock.

 

 

 



Table of Contents

 

REPORT INDEX

 

Part and Item No.

 

Page No.

 

 

 

PART I — Financial Information

 

 

 

 

 

Item 1 — Condensed Consolidated Financial Statements

 

 

 

 

 

General Information

 

1

 

 

 

Condensed Consolidated Balance Sheets as of April 28, 2012 (unaudited), April 30, 2011 (unaudited), and January 28, 2012

 

2

 

 

 

Condensed Consolidated Statements of Earnings for the Quarter Ended April 28, 2012 (unaudited) and April 30, 2011 (unaudited)

 

3

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Quarter Ended April 28, 2012 (unaudited) and April 30, 2011 (unaudited)

 

4

 

 

 

Condensed Consolidated Statements of Cash Flows for the Quarter Ended April 28, 2012 (unaudited) and April 30, 2011 (unaudited)

 

5

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

6

 

 

 

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

21

 

 

 

Item 3 — Quantitative and Qualitative Disclosures about Market Risk

 

29

 

 

 

Item 4 — Controls and Procedures

 

29

 

 

 

PART II — Other Information

 

 

 

 

 

Item 1 — Legal Proceedings

 

30

 

 

 

Item 1A — Risk Factors

 

30

 

 

 

Item 2— Unregistered Sales of Equity Securities and Use of Proceeds

 

31

 

 

 

Item 6 — Exhibits

 

32

 

 

 

SIGNATURES

 

32

 



Table of Contents

 

Forward-Looking and Cautionary Statements

 

Certain statements made in this Quarterly Report on Form 10-Q and in other public filings and press releases by the Company (as defined below) contain “forward-looking” information (as defined in the Private Securities Litigation Reform Act of 1995) that involves risk and uncertainty.  These forward-looking statements may include, but are not limited to, references to future capital expenditures, acquisitions, sales, earnings, margins, costs, number and costs of store openings, demand for clothing, market trends in the retail and corporate apparel clothing business, currency fluctuations, inflation and various economic and business trends.  Forward-looking statements may be made by management orally or in writing, including, but not limited to, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form 10-Q and other sections of our filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended and the Securities Act of 1933, as amended.

 

Forward-looking statements are not guarantees of future performance and a variety of factors could cause actual results to differ materially from the anticipated or expected results expressed in or suggested by these forward-looking statements.  Factors that might cause or contribute to such differences include, but are not limited to: actions by governmental entities, domestic and international economic activity and inflation; success, or lack thereof, in executing our internal operating plans and new store and new market expansion plans, including integration of acquisitions; performance issues with key suppliers; disruption in buying trends due to homeland security concerns; severe weather; foreign currency fluctuations; government export and import policies; aggressive advertising or marketing activities of competitors; and legal proceedings.  Future results will also be dependent upon our ability to continue to identify and complete successful expansions and penetrations into existing and new markets and our ability to integrate such expansions with our existing operations.  Refer to “Risk Factors” contained in Part I of our Annual Report on Form 10-K  for the year ended January 28, 2012 for a more complete discussion of these and other factors that might affect our performance and financial results.   These forward-looking statements are intended to convey the Company’s expectations about the future, and speak only as of the date they are made.  We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

 

PART I.  FINANCIAL INFORMATION

ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

GENERAL INFORMATION

 

The condensed consolidated financial statements herein include the accounts of The Men’s Wearhouse, Inc. and its   subsidiaries and have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).  As applicable under such regulations, certain information and footnote disclosures have been condensed or omitted.  We believe that the presentation and disclosures herein are adequate to make the information not misleading, and the condensed consolidated financial statements reflect all elimination entries and normal recurring adjustments which are necessary for a fair statement of the results for the quarters ended April 28, 2012 and April 30, 2011.

 

Our business historically has been seasonal in nature, and the operating results of the interim periods presented are not necessarily indicative of the results that may be achieved for the full year.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended January 28, 2012 and the related notes thereto included in the Company’s Annual Report on Form 10-K for the year then ended filed with the SEC.

 

Unless the context otherwise requires, “Company”, “we”, “us” and “our” refer to The Men’s Wearhouse, Inc. and its  subsidiaries.

 

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Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

 

April 28,
2012

 

April 30,
2011

 

January 28,
2012

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

118,716

 

$

145,657

 

$

125,306

 

Accounts receivable, net

 

69,249

 

72,004

 

56,669

 

Inventories

 

606,522

 

521,082

 

572,502

 

Other current assets

 

66,392

 

67,911

 

70,906

 

 

 

 

 

 

 

 

 

Total current assets

 

860,879

 

806,654

 

825,383

 

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, net

 

367,628

 

329,592

 

355,717

 

 

 

 

 

 

 

 

 

TUXEDO RENTAL PRODUCT, net

 

112,368

 

95,180

 

99,814

 

GOODWILL

 

89,230

 

91,021

 

87,782

 

INTANGIBLE ASSETS, net

 

33,961

 

38,343

 

33,711

 

OTHER ASSETS

 

4,745

 

7,642

 

3,545

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

1,468,811

 

$

1,368,432

 

$

1,405,952

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable

 

$

159,058

 

$

153,144

 

$

123,445

 

Accrued expenses and other current liabilities

 

179,172

 

170,847

 

154,395

 

Income taxes payable

 

967

 

597

 

3,435

 

 

 

 

 

 

 

 

 

Total current liabilities

 

339,197

 

324,588

 

281,275

 

 

 

 

 

 

 

 

 

DEFERRED TAXES AND OTHER LIABILITIES

 

100,935

 

70,736

 

92,858

 

 

 

 

 

 

 

 

 

Total liabilities

 

440,132

 

395,324

 

374,133

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 3 and Note 13)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EQUITY:

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

Common stock

 

721

 

714

 

718

 

Capital in excess of par

 

368,025

 

343,846

 

362,735

 

Retained earnings

 

1,113,130

 

1,024,168

 

1,095,535

 

Accumulated other comprehensive income

 

44,647

 

52,793

 

36,921

 

Treasury stock, at cost

 

(510,615

)

(461,760

)

(476,749

)

 

 

 

 

 

 

 

 

Total equity attributable to common shareholders

 

1,015,908

 

959,761

 

1,019,160

 

 

 

 

 

 

 

 

 

Noncontrolling interest

 

12,771

 

13,347

 

12,659

 

 

 

 

 

 

 

 

 

Total equity

 

1,028,679

 

973,108

 

1,031,819

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND EQUITY

 

$

1,468,811

 

$

1,368,432

 

$

1,405,952

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)

 

 

 

For the Quarter Ended

 

 

 

April 28,
 2012

 

April 30,
 2011

 

Net sales:

 

 

 

 

 

Retail clothing product

 

$

420,469

 

$

410,261

 

Tuxedo rental services

 

78,489

 

73,141

 

Alteration and other services

 

37,734

 

37,309

 

Total retail sales

 

536,692

 

520,711

 

Corporate apparel clothing product sales

 

49,882

 

59,673

 

Total net sales

 

586,574

 

580,384

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

Retail clothing product

 

188,606

 

187,373

 

Tuxedo rental services

 

11,013

 

9,807

 

Alteration and other services

 

27,558

 

26,301

 

Occupancy costs

 

68,698

 

67,171

 

Total retail cost of sales

 

295,875

 

290,652

 

Corporate apparel clothing product cost of sales

 

36,650

 

43,099

 

Total cost of sales

 

332,525

 

333,751

 

 

 

 

 

 

 

Gross margin:

 

 

 

 

 

Retail clothing product

 

231,863

 

222,888

 

Tuxedo rental services

 

67,476

 

63,334

 

Alteration and other services

 

10,176

 

11,008

 

Occupancy costs

 

(68,698

)

(67,171

)

Total retail gross margin

 

240,817

 

230,059

 

Corporate apparel clothing product gross margin

 

13,232

 

16,574

 

Total gross margin

 

254,049

 

246,633

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

213,102

 

202,996

 

 

 

 

 

 

 

Operating income

 

40,947

 

43,637

 

 

 

 

 

 

 

Interest income

 

128

 

44

 

Interest expense

 

(433

)

(312

)

Earnings before income taxes

 

40,642

 

43,369

 

Provision for income taxes

 

14,062

 

16,177

 

Net earnings including noncontrolling interest

 

26,580

 

27,192

 

Net loss attributable to noncontrolling interest

 

304

 

233

 

 

 

 

 

 

 

Net earnings attributable to common shareholders

 

$

26,884

 

$

27,425

 

 

 

 

 

 

 

Net earnings per common share attributable to common shareholders (Note 2):

 

 

 

 

 

Basic

 

$

0.52

 

$

0.52

 

Diluted

 

$

0.52

 

$

0.52

 

 

 

 

 

 

 

Weighted average common shares outstanding (Note 2):

 

 

 

 

 

Basic

 

50,932

 

51,918

 

Diluted

 

51,237

 

52,197

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.18

 

$

0.12

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

For the Quarter Ended

 

 

 

April 28,
 2012

 

April 30,
 2011

 

 

 

 

 

 

 

Net earnings including noncontrolling interest

 

$

26,580

 

$

27,192

 

 

 

 

 

 

 

Currency translation adjustments, net of tax

 

8,142

 

15,107

 

 

 

 

 

 

 

Comprehensive income including noncontrolling interest

 

34,722

 

42,299

 

 

 

 

 

 

 

Comprehensive loss attributable to noncontrolling interest:

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

304

 

233

 

Currency translation adjustments, net of tax

 

(416

)

(680

)

 

 

 

 

 

 

Amounts attributable to noncontrolling interest

 

(112

)

(447

)

 

 

 

 

 

 

Comprehensive income attributable to common shareholders

 

$

34,610

 

$

41,852

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

For the Quarter Ended

 

 

 

April 28,
2012

 

April 30,
2011

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net earnings including noncontrolling interest

 

$

26,580

 

$

27,192

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

20,681

 

18,652

 

Tuxedo rental product amortization

 

5,988

 

5,546

 

Loss on disposition of assets

 

1,081

 

88

 

Deferred rent expense

 

276

 

359

 

Share-based compensation

 

4,117

 

2,970

 

Excess tax benefits from share-based plans

 

(1,960

)

(691

)

Deferred tax provision

 

8,430

 

7,097

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(11,161

)

(8,900

)

Inventories

 

(30,059

)

(27,266

)

Tuxedo rental product

 

(18,157

)

(10,204

)

Other assets

 

(2,433

)

7,983

 

Accounts payable, accrued expenses and other current liabilities

 

60,335

 

58,584

 

Income taxes payable

 

(445

)

(1,818

)

Other liabilities

 

2,047

 

(558

)

 

 

 

 

 

 

Net cash provided by operating activities

 

65,320

 

79,034

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures

 

(30,664

)

(14,284

)

Proceeds from sales of property and equipment

 

8

 

22

 

 

 

 

 

 

 

Net cash used in investing activities

 

(30,656

)

(14,262

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from issuance of common stock

 

3,233

 

1,539

 

Cash dividends paid

 

(9,357

)

(6,409

)

Tax payments related to vested deferred stock units

 

(4,017

)

(2,955

)

Excess tax benefits from share-based plans

 

1,960

 

691

 

Purchase of treasury stock

 

(33,866

)

(48,999

)

 

 

 

 

 

 

Net cash used in financing activities

 

(42,047

)

(56,133

)

 

 

 

 

 

 

Effect of exchange rate changes

 

793

 

647

 

 

 

 

 

 

 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

(6,590

)

9,286

 

Balance at beginning of period

 

125,306

 

136,371

 

 

 

 

 

 

 

Balance at end of period

 

$

118,716

 

$

145,657

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.  Significant Accounting Policies

 

Basis of Presentation — The condensed consolidated financial statements herein include the accounts of The Men’s Wearhouse, Inc. and its subsidiaries (the “Company”) and have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).  As applicable under such regulations, certain information and footnote disclosures have been condensed or omitted.  We believe that the presentation and disclosures herein are adequate to make the information not misleading, and the condensed consolidated financial statements reflect all elimination entries and normal recurring adjustments which are necessary for a fair presentation of the financial position, results of operations and cash flows at the dates and for the periods presented.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended January 28, 2012.

 

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and related disclosures.  Actual amounts could differ from those estimates.

 

Recent Accounting Pronouncements — In September 2011, the Financial Accounting Standards Board (“FASB”) issued updated guidance regarding testing goodwill for impairment.  The updated guidance will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step goodwill impairment test.  Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount.  The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment.  The amended guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  The adoption of this update had no impact on our financial position, results of operations or cash flows but may change the way we perform our annual goodwill impairment test in the fourth quarter of 2012.

 

In June 2011, the FASB issued updated guidance regarding the presentation of comprehensive income.  The updated guidance allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  The update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity.  The update does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.  In December 2011, the FASB issued a “Deferral of the Effective Date for Amendments of the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income.”  This defers only the changes that relate to the presentation of reclassification adjustments on the face of the financial statements where the components of net income and the components of other comprehensive income are presented.  We present comprehensive income in a separate statement to the accompanying financial statements.  The adoption of this update had no impact on our financial position, results of operations or cash flows.

 

In May 2011, the FASB updated the guidance regarding certain accounting and disclosure requirements related to fair value measurements.  The updated guidance amends U.S. Generally Accepted Accounting Principles (“GAAP”) to create more commonality with International Financial Reporting Standards (“IFRS”) by changing some of the wording used to describe requirements for measuring fair value and for disclosing information about fair value measurements.  The adoption of this update at the beginning of our 2012 fiscal year did not have a material impact on our financial position, results of operations or cash flows.

 

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Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

2.  Earnings per Share

 

Basic earnings per common share attributable to common shareholders is determined using the two-class method and is computed by dividing net earnings attributable to common shareholders by the weighted-average common shares outstanding during the period.  Diluted earnings per common share attributable to common shareholders reflects the more dilutive earnings per common share amount calculated using the treasury stock method or the two-class method.

 

The following table sets forth the computation of basic and diluted earnings per common share attributable to common shareholders (in thousands, except per share amounts). Basic and diluted earnings per common share attributable to common shareholders are computed using the actual net earnings available to common shareholders and the actual weighted-average common shares outstanding rather than the rounded numbers presented within our condensed consolidated statement of earnings and the accompanying notes.  As a result, it may not be possible to recalculate earnings per common share attributable to common shareholders in our condensed consolidated statement of earnings and the accompanying notes.

 

 

 

For the Quarter Ended

 

 

 

April 28,
 2012

 

April 30,
 2011

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

Total net earnings attributable to common shareholders

 

$

26,884

 

$

27,425

 

Net earnings allocated to participating securities (restricted stock and deferred stock units)

 

(426

)

(294

)

Net earnings attributable to common shareholders

 

$

26,458

 

$

27,131

 

Denominator

 

 

 

 

 

Basic weighted average common shares outstanding

 

50,932

 

51,918

 

Effect of dilutive securities:

 

 

 

 

 

Stock options and equity-based compensation

 

305

 

279

 

Diluted weighted average common shares outstanding

 

51,237

 

52,197

 

Net earnings per common share attributable to common shareholders:

 

 

 

 

 

Basic

 

$

0.52

 

$

0.52

 

Diluted

 

$

0.52

 

$

0.52

 

 

For the quarters ended April 28, 2012 and April 30, 2011, 0.2 million and 0.5 million anti-dilutive stock options were excluded from the calculation of diluted earnings per common share attributable to common shareholders, respectively.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

3.  Debt

 

We have a revolving credit facility with a group of banks (the “Credit Agreement”) that provides for a total senior revolving credit facility of $200.0 million, with increases to $300.0 million upon additional lender commitments, that matures on January 26, 2016.  The Credit Agreement is secured by the stock of certain of our subsidiaries.  The Credit Agreement has several borrowing and interest rate options including the following indices:  (i) adjusted LIBO rate, (ii) adjusted EURIBO rate, (iii) CDO rate, (iv) Canadian prime rate or (v) an alternate base rate (equal to the greater of the prime rate, the federal funds rate plus 0.5% or the adjusted LIBO rate for a one month period plus 1.0%).  Advances under the Credit Agreement bear interest at a rate per annum using the applicable indices plus a varying interest rate margin up to 2.75%.  The Credit Agreement also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 2.00% to 2.75%, and a fee on unused commitments which ranges from 0.35% to 0.50%.  As of April 28, 2012, there were no borrowings outstanding under the Credit Agreement.

 

The Credit Agreement contains certain restrictive and financial covenants, including the requirement to maintain certain financial ratios.  The restrictive provisions in the Credit Agreement reflect an overall covenant structure that is generally representative of a commercial loan made to an investment-grade company.  Our debt, however, is not rated and we have not sought, and are not seeking, a rating of our debt.  We were in compliance with the covenants in the Credit Agreement as of April 28, 2012.

 

We utilize letters of credit primarily to secure inventory purchases and as collateral for workers compensation claims.  At April 28, 2012, letters of credit totaling approximately $23.3 million were issued and outstanding.  Borrowings available under our Credit Agreement at April 28, 2012 were $176.7 million.

 

4.  Supplemental Cash Flows

 

Supplemental disclosure of cash flow information is as follows (in thousands):

 

 

 

For the Quarter Ended

 

 

 

April 28,
2012

 

April 30,
2011

 

Cash paid during the quarter for:

 

 

 

 

 

Interest

 

$

328

 

$

177

 

Income taxes, net

 

$

6,786

 

$

2,405

 

 

 

 

 

 

 

Schedule of noncash investing and financing activities:

 

 

 

 

 

Tax benefit related to share-based plans

 

$

1,960

 

$

633

 

Cash dividends declared

 

$

9,271

 

$

6,219

 

 

We had unpaid capital expenditure purchases accrued in accounts payable, accrued expenses and other current liabilities of approximately $11.0 million and $4.9 million at April 28, 2012 and April 30, 2011, respectively. Capital expenditure purchases are recorded as cash outflows from investing activities in the condensed consolidated statement of cash flows in the period they are paid.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

5.  Other Current Assets, Accrued Expenses and Other Current Liabilities and Deferred Taxes and Other Liabilities

 

Other current assets consist of the following (in thousands):

 

 

 

April 28,
2012

 

April 30,
2011

 

January 28,
2012

 

 

 

 

 

 

 

 

 

Prepaid expenses

 

$

34,657

 

$

31,766

 

$

32,266

 

Current deferred tax asset

 

22,396

 

27,329

 

29,392

 

Tax receivable

 

2,233

 

4,309

 

1,564

 

Other

 

7,106

 

4,507

 

7,684

 

 

 

 

 

 

 

 

 

Total other current assets

 

$

66,392

 

$

67,911

 

$

70,906

 

 

 

 

 

 

 

 

 

Accrued expenses and other current liabilities consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued salary, bonus, sabbatical and vacation

 

$

39,198

 

$

37,514

 

$

61,544

 

Sales, value added, payroll and property taxes payable

 

30,661

 

27,998

 

18,176

 

Accrued workers compensation and medical costs

 

17,533

 

17,493

 

17,590

 

Customer deposits, prepayments and refunds payable

 

51,889

 

48,949

 

17,521

 

Unredeemed gift certificates

 

13,343

 

12,890

 

14,895

 

Loyalty program reward certificates

 

6,735

 

6,964

 

6,537

 

Cash dividends declared

 

9,271

 

6,219

 

9,339

 

Other

 

10,542

 

12,820

 

8,793

 

 

 

 

 

 

 

 

 

Total accrued expenses and other current liabilities

 

$

179,172

 

$

170,847

 

$

154,395

 

 

 

 

 

 

 

 

 

Deferred taxes and other liabilities consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred rent and landlord incentives

 

$

51,446

 

$

48,765

 

$

50,953

 

Non-current deferred and other income tax liabilities

 

37,618

 

16,114

 

34,812

 

Other

 

11,871

 

5,857

 

7,093

 

 

 

 

 

 

 

 

 

Total deferred taxes and other liabilities

 

$

100,935

 

$

70,736

 

$

92,858

 

 

9



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

6.  Equity and Noncontrolling Interest

 

A reconciliation of the total carrying amount of the Company’s equity accounts for the quarter ended April 28, 2012 is as follows (in thousands):

 

 

 

Common
Stock

 

Capital in
Excess of
Par

 

Retained
Earnings

 

Accumulated
Other
Comprehensive

Income

 

Treasury
Stock, at Cost

 

Total
Equity
Attributable to
Common
Shareholders

 

Noncontrolling
Interest

 

Total
Equity

 

Balances — January 28, 2012

 

$

718

 

$

362,735

 

$

1,095,535

 

$

36,921

 

$

(476,749

)

$

1,019,160

 

$

12,659

 

$

1,031,819

 

Net earnings (loss)

 

 

 

26,884

 

 

 

26,884

 

(304

)

26,580

 

Other comprehensive income

 

 

 

 

7,726

 

 

7,726

 

416

 

8,142

 

Cash dividends

 

 

 

(9,289

)

 

 

(9,289

)

 

(9,289

)

Share-based compensation

 

 

4,117

 

 

 

 

4,117

 

 

4,117

 

Common stock issued to stock discount plan

 

 

624

 

 

 

 

624

 

 

624

 

Common stock issued upon exercise of stock options

 

1

 

2,608

 

 

 

 

2,609

 

 

2,609

 

Common stock issued pursuant to restricted stock and deferred stock unit awards

 

2

 

(2

)

 

 

 

 

 

 

Tax payments related to vested deferred stock units

 

 

(4,017

)

 

 

 

(4,017

)

 

(4,017

)

Tax benefit related to share-based plans

 

 

1,960

 

 

 

 

1,960

 

 

1,960

 

Treasury stock purchased

 

 

 

 

 

(33,866

)

(33,866

)

 

(33,866

)

Balances — April 28, 2012

 

$

721

 

$

368,025

 

$

1,113,130

 

$

44,647

 

$

(510,615

)

$

1,015,908

 

$

12,771

 

$

1,028,679

 

 

A reconciliation of the total carrying amount of the Company’s equity accounts for the quarter ended April 30, 2011 is as follows (in thousands):

 

 

 

Common
Stock

 

Capital in
Excess of

Par

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Income

 

Treasury
Stock, at Cost

 

Total
Equity
Attributable to
Common
Shareholders

 

Noncontrolling
Interest

 

Total
Equity

 

Balances — January 29, 2011

 

$

710

 

$

341,663

 

$

1,002,975

 

$

38,366

 

$

(412,761

)

$

970,953

 

$

12,900

 

$

983,853

 

Net earnings (loss)

 

 

 

27,425

 

 

 

27,425

 

(233

)

27,192

 

Other comprehensive income

 

 

 

 

14,427

 

 

14,427

 

680

 

15,107

 

Cash dividends

 

 

 

(6,232

)

 

 

(6,232

)

 

(6,232

)

Share-based compensation

 

 

2,970

 

 

 

 

2,970

 

 

2,970

 

Common stock issued to stock discount plan

 

 

520

 

 

 

 

520

 

 

520

 

Common stock issued upon exercise of stock options

 

1

 

1,018

 

 

 

 

1,019

 

 

1,019

 

Common stock issued pursuant to restricted stock and deferred stock unit awards

 

3

 

(3

)

 

 

 

 

 

 

Tax payments related to vested deferred stock units

 

 

(2,955

)

 

 

 

(2,955

)

 

(2,955

)

Tax benefit related to share-based plans

 

 

633

 

 

 

 

633

 

 

633

 

Treasury stock purchased

 

 

 

 

 

(48,999

)

(48,999

)

 

(48,999

)

Balances — April 30, 2011

 

$

714

 

$

343,846

 

$

1,024,168

 

$

52,793

 

$

(461,760

)

$

959,761

 

$

13,347

 

$

973,108

 

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

7.  Treasury Stock

 

In January 2011, the Board of Directors approved a $150.0 million share repurchase program of our common stock, which amended and increased the Company’s then existing $100.0 million share repurchase program authorized in August 2007.

 

During the first quarter of 2011, 1,822,340 shares at a cost of $48.8 million were repurchased at an average price per share of $26.78 under the January 2011 authorization.  During the first quarter of 2012, 861,484 shares at a cost of $33.6 million were repurchased at an average price per share of $39.01 under the January 2011 authorization.  At April 28, 2012, the remaining balance available under the January 2011 authorization was $52.6 million.

 

During the first quarter of 2012 and 2011, 7,041 shares and 7,132 shares, respectively, at a cost of $0.3 million and $0.2 million, respectively, were repurchased at an average price per share of $37.28 and $27.77, respectively, in private transactions to satisfy tax withholding obligations arising upon the vesting of certain restricted stock.

 

The following table summarizes our treasury stock repurchases (in thousands, except share data and average price per share):

 

 

 

For the Quarter Ended

 

 

 

April 28,
2012

 

April 30,
2011

 

 

 

 

 

 

 

Shares repurchased

 

868,525

 

1,829,472

 

Total costs

 

$

33,866

 

$

48,999

 

Average price per share

 

$

38.99

 

$

26.78

 

 

11



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

8.  Share-Based Compensation Plans

 

We maintain several equity plans under which we may grant stock options, stock appreciation rights, restricted stock, deferred stock units and performance based awards to full-time key employees and non-employee directors.  We account for share-based awards in accordance with the FASB standard regarding share-based payments, which requires the compensation cost resulting from all share-based payment transactions be recognized in the financial statements. The amount of compensation cost is measured based on the grant-date fair value of the instrument issued and is recognized over the vesting period.  Share-based compensation expense recognized for the quarters ended April 28, 2012 and April 30, 2011 was $4.1 million and $3.0 million, respectively.

 

Stock Options

 

The following table summarizes stock option activity for the quarter ended April 28, 2012:

 

 

 

Shares

 

Weighted-
Average
Exercise
Price

 

Outstanding at January 28, 2012

 

1,314,422

 

$

22.61

 

Granted

 

100,349

 

40.13

 

Exercised

 

(138,773

)

18.80

 

Forfeited

 

(7,000

)

22.72

 

Expired

 

 

 

Outstanding at April 28, 2012

 

1,268,998

 

$

24.42

 

Exercisable at April 28, 2012

 

678,609

 

$

21.85

 

 

The weighted-average grant date fair value of the 100,349 stock options granted during the quarter ended April 28, 2012 was $17.21 per share.  The following table summarizes the weighted average assumptions used to fair value stock options at the date of grant using the Black-Scholes option pricing model for the quarter ended April 28, 2012.

 

 

 

For the
Quarter
Ended

 

 

 

April 28,
2012

 

 

 

 

 

Risk-free interest rate

 

1.09

%

Expected lives

 

5.0 years

 

Dividend yield

 

2.07

%

Expected volatility

 

58.67

%

 

The assumptions presented in the table above represent the weighted average of the applicable assumptions used to fair value stock options.  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant.  The expected lives represents the period of time the options are expected to be outstanding after their grant date.  The dividend yield is based on the average of the annual dividend divided by the market price of our common stock at the time of declaration. Expected volatility is based on historical volatility of our common stock.

 

As of April 28, 2012, we have unrecognized compensation expense related to nonvested stock options of approximately $5.9 million which is expected to be recognized over a weighted average period of 2.3 years.

 

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Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Nonvested Deferred Stock Units and Restricted Stock Shares

 

The following table summarizes deferred stock unit activity for the quarter ended April 28, 2012:

 

 

 

Shares

 

Weighted-
Average
Grant-Date
Fair Value

 

Nonvested at January 28, 2012

 

539,749

 

$

28.10

 

Granted

 

330,284

 

40.13

 

Vested (1)

 

(350,255

)

27.68

 

Forfeited

 

(4,784

)

27.94

 

Nonvested at April 28, 2012

 

514,994

 

$

36.10

 

 


(1) Includes 109,335 shares relinquished for tax payments related to vested deferred stock units for the quarter ended April 28, 2012.

 

The following table summarizes restricted stock activity for the quarter ended April 28, 2012:

 

 

 

Shares

 

Weighted-
Average
Grant-Date
Fair Value

 

Nonvested at January 28, 2012

 

119,081

 

$

28.45

 

Granted

 

4,578

 

38.20

 

Vested

 

(19,360

)

27.77

 

Forfeited

 

 

 

Nonvested at April 28, 2012

 

104,299

 

$

29.01

 

 

As of April 28, 2012, we have unrecognized compensation expense related to nonvested deferred stock units and shares of restricted stock of approximately $18.6 million, which is expected to be recognized over a weighted average period of 1.5 years.

 

Employee Stock Purchase Plan

 

The Employee Stock Discount Plan (“ESDP”) allows employees to authorize after-tax payroll deductions to be used for the purchase of up to 2,137,500 shares of our common stock at 85% of the lesser of the fair market value on the first day of the offering period or the fair market value on the last day of the offering period.  We make no contributions to this plan but pay all brokerage, service and other costs incurred.  The plan, as amended, allows participants to purchase no more than 125 shares during any calendar quarter.

 

During the quarter ended April 28, 2012, employees purchased 22,452 shares under the ESDP, which had a weighted-average share price of $27.79 per share.  As of April 28, 2012, 930,650 shares were reserved for future issuance under the ESDP.

 

13



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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

9.  Goodwill and Other Intangible Assets

 

Goodwill

 

Goodwill allocated to the Company’s reportable segments and changes in the net carrying amount of goodwill for the quarter ended April 28, 2012 are as follows (in thousands):

 

 

 

Retail

 

Corporate
Apparel

 

Total

 

Balance at January 28, 2012

 

$

59,900

 

$

27,882

 

$

87,782

 

Translation adjustment

 

557

 

891

 

1,448

 

Balance at April 28, 2012

 

$

60,457

 

$

28,773

 

$

89,230

 

 

Goodwill is evaluated for impairment annually as of our fiscal year end.  A more frequent evaluation is performed if events or circumstances indicate that impairment could have occurred.  Such events or circumstances could include, but are not limited to, new significant negative industry or economic trends, unanticipated changes in the competitive environment, decisions to significantly modify or dispose of operations and a significant sustained decline in the market price of our stock.  No additional impairment evaluation was considered necessary during the first quarter of fiscal 2012.

 

Intangible Assets

 

The gross carrying amount and accumulated amortization of our identifiable intangible assets are as follows (in thousands):

 

 

 

April 28,
2012

 

April 30,
2011

 

January 28,
2012

 

 

 

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

 

Carrying amount:

 

 

 

 

 

 

 

Trademarks, tradenames, and other intangibles

 

$

12,533

 

$

12,835

 

$

12,648

 

Customer relationships

 

33,225

 

34,141

 

32,149

 

Total carrying amount

 

45,758

 

46,976

 

44,797

 

Accumulated amortization:

 

 

 

 

 

 

 

Trademarks, tradenames, and other intangibles

 

(8,259

)

(7,870

)

(8,339

)

Customer relationships

 

(4,838

)

(2,099

)

(4,005

)

Total accumulated amortization

 

(13,097

)

(9,969

)

(12,344

)

Total amortizable intangible assets, net

 

32,661

 

37,007

 

32,453

 

Infinite-lived intangible assets:

 

 

 

 

 

 

 

Trademarks

 

1,300

 

1,336

 

1,258

 

Total intangible assets, net

 

$

33,961

 

$

38,343

 

$

33,711

 

 

The pretax amortization expense associated with intangible assets subject to amortization totaled approximately $0.8 million and $0.9 million for the quarter ended April 28, 2012 and April 30, 2011, respectively, and approximately $3.4 million for the year ended January 28, 2012.  Pretax amortization associated with intangible assets subject to amortization at April 28, 2012 is estimated to be $2.4 million for the remainder of fiscal year 2012, $3.2 million for fiscal year 2013 and $3.1 million for each of the fiscal years 2014, 2015 and 2016.

 

14



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

10.  Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The authoritative guidance for fair value measurements establishes a three-tier fair value hierarchy, categorizing the inputs used to measure fair value.  The hierarchy can be described as follows:  Level 1- observable inputs such as quoted prices in active markets; Level 2- inputs other than the quoted prices in active markets that are observable either directly or indirectly; and Level 3- unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.  The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

There were no transfers into or out of Level 1 and Level 2 during the quarter ended April 28, 2012 or April 30, 2011, respectively, or during the year ended January 28, 2012.

 

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

(in thousands)

 

Quoted Prices
in Active
Markets for
Identical
Instruments
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Total

 

At April 28, 2012-

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

20,027

 

$

 

$

 

$

20,027

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

 

$

548

 

$

 

$

548

 

 

 

 

 

 

 

 

 

 

 

At January 28, 2012-

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

20,017

 

$

 

$

 

$

20,017

 

Derivative financial instruments

 

$

 

$

14

 

$

 

$

14

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

 

$

142

 

$

 

$

142

 

 

 

 

 

 

 

 

 

 

 

At April 30, 2011-

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

 

$

207

 

$

 

$

207

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

 

$

1,371

 

$

 

$

1,371

 

 

Cash equivalents consist of money market instruments that have original maturities of three months or less.  The carrying value of cash equivalents approximates fair value due to the highly liquid and short-term nature of these instruments.

 

Derivative financial instruments are comprised of foreign currency forward exchange contracts primarily entered into to minimize our foreign currency exposure related to forecasted purchases of certain inventories denominated in a currency different from the operating entity’s functional currency.  Our derivative financial instruments are recorded in the condensed consolidated balance sheets at fair value based upon observable market inputs.  Derivative financial instruments in an asset position are included within other current assets in the condensed consolidated balance sheets. Derivative financial instruments in a liability position are included within accrued expenses and other current liabilities in the condensed consolidated balance sheets.  Refer to Note 11 for further information regarding our derivative instruments.

 

15



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Assets and Liabilities that are Measured at Fair Value on a Non-Recurring Basis

 

Long-lived assets, such as property and equipment and identifiable intangibles with finite useful lives, are periodically evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the asset carrying amount exceeds its fair value, an impairment charge is recognized in the amount by which the carrying amount exceeds the fair value of the asset.  The fair values of long-lived assets held-for-use are based on our own judgments about the assumptions that market participants would use in pricing the asset and on observable market data, when available.  We classify these measurements as Level 3 within the fair value hierarchy.  No impairment charges were recorded for the carrying value of long-lived assets during the first quarter of 2012 or 2011.

 

Fair Value of Financial Instruments

 

Our financial instruments, other than those presented in the disclosures above, consist of cash, accounts receivable, accounts payable and accrued expenses and other current liabilities.  Management estimates that, as of April 28, 2012, April 30, 2011 and January 28, 2012, the carrying value of cash, accounts receivable, accounts payable and accrued expenses and other current liabilities approximate their fair value due to the highly liquid or short-term nature of these instruments.

 

11.  Derivative Financial Instruments

 

We are exposed to market risk associated with foreign currency exchange rate fluctuations as a result of our direct sourcing programs and our operations in foreign countries.  In connection with our direct sourcing programs, we may enter into merchandise purchase commitments that are denominated in a currency different from the functional currency of the operating entity.  Our risk management policy is to hedge a significant portion of forecasted merchandise purchases for our direct sourcing programs that bear foreign exchange risk using foreign exchange forward contracts.  The Company has not elected to apply hedge accounting to these transactions denominated in a foreign currency.

 

Our derivative financial instruments are recorded in the condensed consolidated balance sheet at fair value determined by comparing the cost of the foreign currency to be purchased under the contracts using the exchange rates obtained under the contracts (adjusted for forward points) to the hypothetical cost using the spot rate at period end.

 

16



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The tables below disclose the fair value of the derivative financial instruments included in the condensed consolidated balance sheets as of April 28, 2012, January 28, 2012 and April 30, 2011 (in thousands):

 

 

 

Asset Derivatives

 

Liability Derivatives

 

 

 

Balance Sheet
Location

 

Fair Value

 

Balance Sheet
Location

 

Fair Value

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At April 28, 2012-

 

Other current

 

 

 

Accrued expenses and

 

 

 

Foreign exchange forward contracts

 

assets

 

$

 

other current liabilities

 

$

548

 

 

 

 

 

 

 

 

 

 

 

At January 28, 2012-

 

Other current

 

 

 

Accrued expenses and

 

 

 

Foreign exchange forward contracts

 

assets

 

$

14

 

 other current liabilities

 

$

142

 

 

 

 

 

 

 

 

 

 

 

At April 30, 2011-

 

Other current

 

 

 

Accrued expenses and

 

 

 

Foreign exchange forward contracts

 

assets

 

$

207

 

other current liabilities

 

$

1,371

 

 

At April 28, 2012, we had 12 contracts to purchase euros for an aggregate notional amount of US$1.4 million maturing in various increments at various dates through August 2012, 11 contracts to purchase United States dollars (“USD”) for an aggregate notional amount of Canadian dollars (“CAD”) $5.0 million maturing in various increments at various dates through August 2012 and 15 contracts to purchase USD for an aggregate notional amount of pounds Sterling (“GBP”) £10.9 million maturing in various increments at various dates through August 2012.  For the quarter ended April 28, 2012, we recognized a net pre-tax loss of $0.8 million in cost of sales in the condensed consolidated statement of earnings for our derivative financial instruments not designated as cash flow hedges.

 

At January 28, 2012, we had 10 contracts maturing in varying increments to purchase euros for an aggregate notional amount of US$1.7 million maturing at various dates through June 2012, nine contracts maturing in varying increments to purchase USD for an aggregate notional amount of CAD $5.9 million maturing at various dates through June 2012 and 22 contracts maturing in varying increments to purchase USD for an aggregate notional amount of GBP £10.5 million maturing at various dates through May 2012.

 

At April 30, 2011, we had six contracts to purchase euros for an aggregate notional amount of US$3.0 million maturing in various increments at various dates through October 2011, two contracts to purchase USD for an aggregate notional amount of CAD $0.2 million maturing in various increments at various dates through May 2011 and 60 contracts to purchase USD for an aggregate notional amount of GBP £21.7 million maturing in various increments at various dates through November 2011.  For the quarter ended April 30, 2011, we recognized a net pre-tax loss of $0.8 million in cost of sales in the condensed consolidated statement of earnings for our derivative financial instruments not designated as cash flow hedges.

 

We had no derivative financial instruments with credit-risk-related contingent features underlying the agreements as of April 28, 2012, January 28, 2012 or April 30, 2011, respectively.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

12.  Segment Reporting

 

The Company’s operations are conducted in two reportable segments, retail and corporate apparel, based on the way we manage, evaluate and internally report our business activities.

 

The retail segment includes the results from our four retail merchandising brands: Men’s Wearhouse, Men’s Wearhouse and Tux, K&G and Moores Clothing for Men (“Moores”).  These four brands are operating segments that have been aggregated into the retail reportable segment based on their similar economic characteristics, products, production processes, target customers and distribution methods.  MW Cleaners is also aggregated in the retail segment as these operations have not had a significant effect on the revenues or expenses of the Company.  Specialty apparel merchandise offered by our four retail merchandising concepts includes suits, suit separates, sport coats, slacks, sportswear, outerwear, dress shirts, shoes and accessories for men.  Ladies’ career apparel, sportswear and accessories, including shoes, and children’s apparel is offered at most of our K&G stores and tuxedo rentals are offered at our Men’s Wearhouse, Men’s Wearhouse and Tux and Moores retail stores.

 

The corporate apparel segment includes the results from our corporate apparel and uniform operations conducted by Twin Hill in the United States and Dimensions and Alexandra in the UK.  The two corporate apparel and uniform concepts are operating segments that have been aggregated into the reportable corporate apparel segment based on their similar economic characteristics, products, production processes, target customers and distribution methods.  The corporate apparel segment provides corporate clothing uniforms and workwear to workforces.

 

Operating income is the primary measure of profit we use to make decisions on allocating resources to our operating segments and to assess the operating performance of each operating segment.  It is defined as income before interest expense, interest income, income taxes and noncontrolling interest.  Corporate expenses and assets are allocated to the retail segment.

 

Net sales by brand and reportable segment are as follows (in thousands):

 

 

 

For the Quarter Ended

 

 

 

April 28, 2012

 

April 30, 2011

 

Net sales:

 

 

 

 

 

MW (1)

 

$

371,468

 

$

354,671

 

K&G

 

103,092

 

106,749

 

Moores

 

55,478

 

53,180

 

MW Cleaners

 

6,654

 

6,111

 

Total retail segment

 

536,692

 

520,711

 

 

 

 

 

 

 

Twin Hill

 

7,065

 

5,715

 

Dimensions and Alexandra (UK)

 

42,817

 

53,958

 

Total corporate apparel segment

 

49,882

 

59,673

 

 

 

 

 

 

 

Total net sales

 

$

586,574

 

$

580,384

 

 


(1)  MW includes Men’s Wearhouse and Men’s Wearhouse and Tux stores.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table sets forth supplemental products and services sales information for the Company (in thousands):

 

 

 

For the Quarter Ended

 

 

 

April 28, 2012

 

April 30, 2011

 

Net sales:

 

 

 

 

 

Men’s tailored clothing product

 

$

230,280

 

$

229,203

 

Men’s non-tailored clothing product

 

166,888

 

158,283

 

Ladies’ clothing product

 

23,301

 

22,775

 

Total retail clothing product

 

420,469

 

410,261

 

 

 

 

 

 

 

Tuxedo rental services

 

78,489

 

73,141

 

 

 

 

 

 

 

Alteration services

 

31,080

 

31,198

 

Retail dry cleaning services

 

6,654

 

6,111

 

Total alteration and other services

 

37,734

 

37,309

 

 

 

 

 

 

 

Corporate apparel clothing product

 

49,882

 

59,673

 

 

 

 

 

 

 

Total net sales

 

$

586,574

 

$

580,384

 

 

Operating income (loss) by reportable segment and the reconciliation to earnings before income taxes is as follows (in thousands):

 

 

 

For the Quarter Ended

 

 

 

April 28, 2012

 

April 30, 2011

 

Operating income (loss):

 

 

 

 

 

Retail

 

$

43,367

 

$

44,897

 

Corporate apparel

 

(2,420

)

(1,260

)

Operating income

 

40,947

 

43,637

 

Interest income

 

128

 

44

 

Interest expense

 

(433

)

(312

)

Earnings before income taxes

 

$

40,642

 

$

43,369

 

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

13.  Legal Matters

 

We are involved in various routine legal proceedings, including ongoing litigation, incidental to the conduct of our business.  Management does not believe that any of these matters will have a material adverse effect on our financial position, results of operations or cash flows.

 

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Table of Contents

 

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

General

 

For supplemental information, it is suggested that “Management’s Discussion and Analysis of Financial Condition and Results of Operations” be read in conjunction with the corresponding section included in our Annual Report on Form 10-K for the year ended January 28, 2012.  References herein to years are to our 52-week or 53-week fiscal year which ends on the Saturday nearest January 31 in the following calendar year.  For example, references to “2012” mean the 53-week fiscal year ending February 2, 2013.

 

Our operations are conducted in two reportable segments, retail and corporate apparel, based on the way we manage, evaluate and internally report our business activities.

 

The Company conducts its retail segment as a specialty apparel retailer offering suits, suit separates, sport coats, slacks, sportswear, outerwear, dress shirts, shoes and accessories for men and tuxedo rentals.  We offer our products and services through multiple brands and channels including The Men’s Wearhouse, Men’s Wearhouse and Tux, K&G, Moores Clothing for Men (“Moores”) and on the internet at www.menswearhouse.com and www.kgstores.com.  Our stores are located throughout the United States and Canada and carry a wide selection of brand name and private label merchandise.  In addition, we offer our customers a variety of services, including alterations and our loyalty program, and most of our K&G stores offer ladies’ career apparel, sportswear, accessories and shoes and children’s apparel.  MW Cleaners is also aggregated in the retail segment as these operations have not had a significant effect on the revenues or expenses.  MW Cleaners conducts retail dry cleaning and laundry operations in the Houston, Texas area.

 

The corporate apparel segment includes the results from our corporate apparel and uniform operations conducted by Twin Hill in the United States and by Dimensions and Alexandra in the United Kingdom.  Refer to Note 12 of Notes to Condensed Consolidated Financial Statements for additional information and disclosures regarding our reportable segments and the discussion included in “Results of Operations” below.

 

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Table of Contents

 

Overview

 

We had revenues of $586.6 million, gross margin of $254.0 million and net earnings attributable to common shareholders of $26.9 million for the quarter ended April 28, 2012, compared to revenues of $580.4 million, gross margin of $246.6 million and net earnings attributable to common shareholders of $27.4 million for the quarter ended April 30, 2011.  We increased our revenues by $6.2 million or 1.1% and our gross margin by $7.4 million or 3.0%, while net earnings attributable to common shareholders declined by $0.5 million or 2.0%.

 

The following table presents information with respect to retail apparel stores in operation during each of the respective fiscal periods:

 

 

 

For the Quarter
Ended

 

For the Year
Ended

 

 

 

April 28,
2012

 

April 30,
2011

 

January 28,
2012

 

 

 

 

 

 

 

 

 

Stores open at beginning of period:

 

1,166

 

1,192

 

1,192

 

Opened

 

4

 

3

 

25

 

Closed

 

(8

)

(8

)

(51

)

Stores open at end of period

 

1,162

 

1,187

 

1,166

 

 

 

 

 

 

 

 

 

Stores open at end of period:

 

 

 

 

 

 

 

Men’s Wearhouse

 

611

 

587

 

607

 

Men’s Wearhouse & Tux

 

336

 

382

 

343

 

K&G

 

98

 

101

 

99

 

Moores

 

117

 

117

 

117

 

 

 

1,162

 

1,187

 

1,166

 

 

During the first quarter of 2012, we opened four Men’s Wearhouse stores and closed eight stores (one K&G store and seven Men’s Wearhouse & Tux stores), of which seven had reached the end of their lease terms.

 

Our sales and net earnings are subject to seasonal fluctuations.  In most years, a greater portion of our net retail clothing sales have been generated during the fourth quarter of each year when holiday season shopping peaks.  In addition, our tuxedo rental revenues are heavily concentrated in the second quarter while the fourth quarter is considered the seasonal low point.  With respect to corporate apparel sales and operating results, seasonal fluctuations are not significant but customer decisions to rebrand or revise their corporate wear programs can cause significant variations in period results.  Because of these fluctuations in our sales, results for any quarter are not necessarily indicative of the results that may be achieved for the full year.  Additionally, U.S. and global economic conditions that impact consumer confidence and the level of consumer discretionary spending also impact our operating results.

 

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Table of Contents

 

Results of Operations

 

For the Quarter Ended April 28, 2012 compared to the Quarter Ended April 30, 2011

 

The following table sets forth the Company’s results of operations expressed as a percentage of net sales for the periods indicated:

 

 

 

For the Quarter
 Ended 
(1)

 

 

 

April 28,

 

April 30,

 

 

 

2012

 

2011

 

Net sales:

 

 

 

 

 

Retail clothing product

 

71.7

%

70.7

%

Tuxedo rental services

 

13.4

 

12.6

 

Alteration and other services

 

6.4

 

6.4

 

Total retail sales

 

91.5

 

89.7

 

Corporate apparel clothing product sales

 

8.5

 

10.3

 

Total net sales

 

100.0

%

100.0

%

Cost of sales (2):

 

 

 

 

 

Retail clothing product

 

44.9

 

45.7

 

Tuxedo rental services

 

14.0

 

13.4

 

Alteration and other services

 

73.0

 

70.5

 

Occupancy costs

 

12.8

 

12.9

 

Total retail cost of sales

 

55.1

 

55.8

 

Corporate apparel clothing product cost of sales

 

73.5

 

72.2

 

Total cost of sales

 

56.7

 

57.5

 

Gross margin (2):

 

 

 

 

 

Retail clothing product

 

55.1

 

54.3

 

Tuxedo rental services

 

86.0

 

86.6

 

Alteration and other services

 

27.0

 

29.5

 

Occupancy costs

 

(12.8

)

(12.9

)

Total retail gross margin

 

44.9

 

44.2

 

Corporate apparel clothing product gross margin

 

26.5

 

27.8

 

Total gross margin

 

43.3

 

42.5

 

Selling, general and administrative expenses

 

36.3

 

35.0

 

Operating income

 

7.0

 

7.5

 

Interest income

 

0.0

 

0.0

 

Interest expense

 

(0.1

)

(0.1

)

Earnings before income taxes

 

6.9

 

7.5

 

Provision for income taxes

 

2.4

 

2.8

 

Net earnings including noncontrolling interest

 

4.5

 

4.7

 

Net loss attributable to noncontrolling interest

 

0.1

 

0.0

 

Net earnings attributable to common shareholders

 

4.6

%

4.7

%

 


(1)             Percentage line items may not sum to totals due to the effect of rounding.

(2)             Calculated as a percentage of related sales.

 

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Table of Contents

 

Total retail sales increased $16.0 million, or 3.1%, to $536.7 million due mainly to a $10.2 million increase in retail clothing product revenues and a $5.3 million increase in tuxedo rental services revenues.  These increases are attributable to the following:

 

(in millions)

 

Amount Attributed to

 

$

11.6

 

Increase in comparable sales.

 

8.7

 

Increase from net sales of stores opened in 2011, relocated stores and expanded stores not yet included in comparable sales.

 

1.2

 

Increase in e-commerce, alteration and other services sales.

 

0.8

 

Increase in net sales from four new stores opened in 2012.

 

(5.1

)

Decrease in net sales resulting from closed stores.

 

(1.2

)

Decrease in net sales resulting from change in U.S./Canadian dollar exchange rate.

 

$

16.0

 

Increase in total retail sales.

 

 

Comparable store sales (which are calculated by excluding the net sales of a store for any month of one period if the store was not open throughout the same month of the prior period) increased 3.8% at Men’s Wearhouse/Men’s Wearhouse and Tux, increased 7.1% at Moores and decreased 4.0% at K&G.  The increase at Men’s Wearhouse/Men’s Wearhouse and Tux resulted from increased average unit retails (net selling prices) that more than offset decreases in the units sold per transaction and the average number of transactions per store.  The increase at Moores was driven by increased average unit retails and increased units sold per transaction that more than offset a decrease in the average number of transactions per store.  The decrease at K&G was due to decreased average unit retails that more than offset increases in units sold per transaction and the average number of transactions per store.  Tuxedo rental service revenues increased primarily due to increased unit rentals in the U.S.

 

Total corporate apparel clothing product sales decreased $9.8 million.  UK corporate apparel sales decreased $11.1 million due mainly to the absence in 2012 of new programs by several customers which occurred in the first quarter of 2011.  U.S. corporate apparel sales increased $1.3 million due primarily to increased sales from a customer program and increased catalog sales.

 

The Company’s gross margin was as follows:

 

 

 

For the Quarter Ended

 

 

 

April 28,

 

April 30,

 

 

 

2012

 

2011

 

Gross margin (in thousands)

 

$

254,049

 

$

246,633

 

 

 

 

 

 

 

Gross margin as a percentage of related sales:

 

 

 

 

 

Retail gross margin:

 

 

 

 

 

Clothing product

 

55.1

%

54.3

%

Tuxedo rental services

 

86.0

%

86.6

%

Alteration and other services

 

27.0

%

29.5

%

Occupancy costs

 

(12.8

)%

(12.9

)%

Total retail gross margin

 

44.9

%

44.2

%

 

 

 

 

 

 

Corporate apparel clothing product gross margin

 

26.5

%

27.8

%

 

 

 

 

 

 

Total gross margin

 

43.3

%

42.5

%

 

Buying and distribution costs are included in determining our retail and corporate apparel clothing product gross margins.  Our gross margin may not be comparable to other specialty retailers, as some companies exclude costs related to their distribution network from cost of goods sold while others, like us, include all or a portion of such costs in cost of goods sold and exclude them from selling, general and administrative expenses.  Distribution costs are not included in determining our tuxedo rental services gross margin but are included in selling, general and administrative expenses.

 

In the retail segment, total gross margin as a percentage of related sales increased from 44.2% in the first quarter of 2011 to 44.9% in the first quarter of 2012.  On an absolute dollar basis, total retail segment gross margin increased $10.8 million or 4.7% from the same prior year quarter to $240.8 million in the first quarter of 2012.  Retail clothing product gross margin increased from 54.3% in the first quarter of 2011 to 55.1% in the first quarter of 2012 due primarily to increased average unit retails. The gross

 

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margin for alteration and other services decreased from 29.5% in the first quarter of 2011 to 27.0% in the first quarter of 2012 mainly as a result of increased payroll related costs.  Occupancy costs, which is relatively constant on a per store basis and includes store related rent, common area maintenance, utilities, repairs and maintenance, security, property taxes and depreciation, decreased slightly from 12.9% in the first quarter of 2011 to 12.8% in the first quarter of 2012.  On an absolute dollar basis, occupancy costs increased $1.5 million primarily due to higher rent and depreciation expense.

 

In the corporate apparel segment, total gross margin as a percentage of related sales decreased from 27.8% in the first quarter of 2011 to 26.5% in the first quarter of 2012 mainly as a result of the decreased new program sales by our UK-based operations.  On an absolute dollar basis, corporate apparel gross margin decreased $3.3 million.

 

Selling, general and administrative expenses (“SG&A”) increased to $213.1 million in the first quarter of 2012 from $203.0 million in the first quarter of 2011, an increase of $10.1 million or 5.0%.  As a percentage of total net sales, these expenses increased from 35.0% in the first quarter of 2011 to 36.3% in the first quarter of 2012.  The components of this 1.3% net increase in SG&A expenses as a percentage of total net sales and the related absolute dollar changes were as follows:

 

%

 

 

Attributed to

 

0.3

 

 

Increase in advertising expense as a percentage of sales from 3.0% in the first quarter of 2011 to 3.3% in the first quarter of 2012. On an absolute dollar basis, advertising expense increased $1.6 million.

 

0.4

 

 

Increase in store salaries as a percentage of sales from 12.7% in the first quarter of 2011 to 13.1% in the first quarter of 2012. Store salaries on an absolute dollar basis increased $3.6 million primarily due to increased store sales support salaries and increased commissions associated with increased retail sales.

 

0.6

 

 

Increase in other SG&A expenses as a percentage of sales from 19.3% in the first quarter of 2011 to 19.9% in the first quarter of 2012. On an absolute dollar basis, other SG&A expenses increased $4.9 million primarily due to increased payroll related costs and increased expenses associated with increased retail sales.

 

1.3

%

 

Total

 

 

In the retail segment, SG&A expenses as a percentage of related net sales increased from 35.6% in the first quarter of 2011 to 36.8% in the first quarter of 2012.  On an absolute dollar basis, retail segment SG&A expenses increased $12.3 million primarily due to increased advertising expense, stores salaries, payroll related costs and expenses associated with increased retail sales.

 

In the corporate apparel segment, SG&A expenses as a percentage of related net sales increased from 29.9% in the first quarter of 2011 to 31.4% in the first quarter of 2012.  On an absolute dollar basis, corporate apparel segment SG&A expenses decreased $2.2 million primarily due to reduced UK operating expenses following the consolidation of Dimensions and Alexandra distribution facilities and supporting service functions and the absence in the first quarter of 2012 of $0.7 million in integration costs associated with our 2010 UK acquisitions.

 

Corporate apparel segment operating loss of $2.4 million for the first quarter of 2012 includes $1.7 million of operating losses in the UK and $0.7 million of operating losses in the U.S.

 

Our effective income tax rate was 34.6% for the first quarter of fiscal 2012 and 37.3% for the first quarter of fiscal 2011.  The effective tax rate for the first quarter of fiscal 2012 was lower than the statutory U.S. federal rate of 35% due to the favorable tax rate effects from net permanent book-to-tax adjustments and lower foreign statutory tax rates imposed on our foreign operations, offset partially by the effect of state income taxes.  The effective tax rate for the first quarter of fiscal 2011 was higher than the statutory U.S. federal rate of 35% due mainly to state income taxes, offset partially by lower foreign statutory tax rates imposed on our foreign operations.

 

These factors resulted in net earnings attributable to common shareholders of $26.9 million or 4.6% of net sales for the first quarter of 2012, compared with net earnings of $27.4 million or 4.7% of net sales for the first quarter of 2011.

 

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Table of Contents

 

Liquidity and Capital Resources

 

At April 28, 2012, January 28, 2012 and April 30, 2011, cash and cash equivalents totaled $118.7 million, $125.3 million and $145.7 million, respectively, and  working capital was $521.7 million, $544.1 million and $482.1 million, respectively.  Our primary sources of working capital are cash flows from operations and borrowings under our Credit Agreement (as defined below).  The $22.4 million decrease in working capital at April 28, 2012 compared to January 28, 2012 was due mainly to purchases of treasury stock made during the first quarter of 2012.

 

Credit Facilities

 

We have a revolving credit facility with a group of banks (the “Credit Agreement”) that provides for a total senior revolving credit facility of $200.0 million, with increases to $300.0 million upon additional lender commitments, that matures on January 26, 2016.  The Credit Agreement is secured by the stock of certain of our subsidiaries.  The Credit Agreement has several borrowing and interest rate options including the following indices:  (i) adjusted LIBO rate, (ii) adjusted EURIBO rate, (iii) CDO rate, (iv) Canadian prime rate or (v) an alternate base rate (equal to the greater of the prime rate, the federal funds rate plus 0.5% or the adjusted LIBO rate for a one month period plus 1.0%).  Advances under the Credit Agreement bear interest at a rate per annum using the applicable indices plus a varying interest rate margin up to 2.75%.  The Credit Agreement also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 2.00% to 2.75%, and a fee on unused commitments which ranges from 0.35% to 0.50%.  As of April 28, 2012, there were no borrowings outstanding under the Credit Agreement.

 

The Credit Agreement contains certain restrictive and financial covenants, including the requirement to maintain certain financial ratios.  The restrictive provisions in the Credit Agreement reflect an overall covenant structure that is generally representative of a commercial loan made to an investment-grade company.  Our debt, however, is not rated and we have not sought, and are not seeking, a rating of our debt.  We were in compliance with the covenants in the Credit Agreement as of April 28, 2012.

 

We utilize letters of credit primarily to secure inventory purchases and as collateral for workers compensation claims.  At April 28, 2012, letters of credit totaling approximately $23.3 million were issued and outstanding.  Borrowings available under our Credit Agreement at April 28, 2012 were $176.7 million.

 

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Table of Contents

 

Cash flow activities

 

Operating activities — Our primary source of operating cash flow is from sales to our customers.  Our primary uses of cash include clothing product inventory and tuxedo rental product purchases, personnel related expenses, occupancy costs, advertising costs and income tax payments.  Our operating activities provided net cash of $65.3 million in the first quarter of 2012, due mainly to net earnings, adjusted for non-cash charges, and an increase in accounts payable, accrued expenses and other current liabilities, offset by increases in accounts receivable, inventories and tuxedo rental product.  During the first quarter of 2011, our operating activities provided net cash of $79.0 million, due mainly to net earnings, adjusted for non-cash charges, a decrease in other assets and an increase in accounts payable, accrued expenses and other current liabilities, offset by increases in accounts receivable, inventories and tuxedo rental product.  The increase in accounts receivable in the first quarter of 2012 and 2011 was due mainly to the seasonal increase at quarter end for receivables from third-party credit card providers for prom and other tuxedo rentals.  The increase in inventories during the first quarter of 2012 and 2011 was primarily due to our usual inventory replenishment following the holiday shopping season.  Tuxedo rental product increased in each of the periods to support the continued growth of our tuxedo rental business and to replenish product offerings.  The increase in accounts payable, accrued expenses and other current liabilities in the first quarter of 2012 and 2011 was primarily due to the timing of vendor payments for inventory and tuxedo product purchases and the seasonal increase in tuxedo rental deposits.  The decrease in other assets in the first quarter of 2011 was due mainly to a decrease in deferred tax assets.

 

Investing activities — Our cash outflows from investing activities are primarily for capital expenditures.  During the first quarter of 2012 and 2011, our investing activities used net cash of $30.7 million and $14.3 million, respectively, for capital expenditures.  Our capital expenditures relate to costs incurred for stores opened, remodeled or relocated during the period or under construction at the end of the period, office and distribution facility additions, infrastructure technology investments, investments in our corporate uniform program and, in 2012, investments in other corporate assets.

 

Financing activities — Our cash outflows from financing activities consist primarily of cash dividen