Tailored Brands on Wednesday reported that total net sales in the second quarter dropped 4.1% year over year to $789.5 million, with retail sales also falling 4.1% to $736.1 million. By brand, Men's Wearhouse net sales fell 4.9% to $423.5 million and Jos. A. Bank fell 3.7% to $166.1 million, according to a company press release.
Retail comps also dropped significantly: 3.6% overall, 4.3% at Men's Wearhouse and 3.3% at Jos. A. Bank, the company said.
The sales drop hurt margins. As a percent of sales, consolidated gross margin contracted by 250 basis points to 42.3%. Operating income in the quarter fell to $60.6 million from $88 million last year as operating margin declined 300 basis points. As a percent of sales, adjusted operating margin declined 220 basis points to 9%. Net earnings fell to $34.3 million from last year's $49.2 million; On an adjusted basis, net earnings fell to $41.7 million from $54.6 million last year.
Tailored Brands is betting on its retail businesses, especially its largest banners Men's Wearhouse and Jos. A. Bank, rather than its corporate apparel business, a wholesale unit the brand sold off in August. The corporate apparel business included operations in the United Kingdom and the United States, under brands Dimensions, Twin Hill, Alexandra and Yaffy.
But it's also adjusting to a reality where men simply need fewer suits. "We are seeing heavy promotional activity in suits," CEO Dinesh Lathi told analysts, according to a Seeking Alpha transcript, noting later, "This trend of casualization ... it works against off-the-rack suits."
At the same time, however, the company noted a trend toward personalization, which presents an opportunity, he said. "And given that we're playing in custom suits, that's actually a trend that helps us," he said, "and it's one of the drivers behind the healthy growth we continue to see in our custom suiting business, even while that business is tracking at a multi $100 million scale."
The custom business is growing at double-digit rates, and in the second quarter the company averaged over $6 million per week in custom suiting, up from over $4 million a year ago, he noted.
Executives pointed to "green shoots" emerging in a turnaround that Lathi warned will take a long time. The share slide Wednesday evening was due in part to the company's decision to forego its dividend in favor of a mix of share repurchases and accelerated debt repayment. But the company's comp outlook for the third quarter, with Men's Wearhouse expected to be down 3% to 5%, Jos. A. Bank to be down 2% to 4% and rental comp to be down about 6% didn't help.
Cost reductions are also key to its recovery, and that will entail shuttering stores. The company has closed a net 14 stores in the last 12 months and expects to close a net seven more, across Men's Wearhouse and Jos. A. Bank, according to its release.
In the remaining stores, though, the company has added more employees on the weekends for a better customer experience. "That experiment was a winner," Lathi said. "We saw a meaningful lift in sales with the test stores that more than paid for the additional labor, and we are in the process of scaling this new labor model more broadly."