The Men’s Wearhouse, Inc. Q1 2010 Earnings Call Transcript

Jun. 9.10 | About: Tailored Brands, (TLRD)

The Men’s Wearhouse, Inc. (MW) Q1 2010 Earnings Call June 9, 2010 5:00 PM ET

Executives

Ken Dennard – DRG&E, IR

George Zimmer – Chairman and CEO

Neill Davis – Chief Financial Officer

Doug Ewert – President and COO

Analysts

Janet Kloppenburg – JJK Research

David Mann – Johnson Rice

Betty Chen – Wedbush Securities

Richard Jaffe – Stifel Nicolaus

Ike Boruchow – JP Morgan

Laura Champine – Cowen and Company

Barry Posternak – Ramsey Asset Management

Operator

Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the Men’s Wearhouse First Quarter 2010 Earnings Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions)

This conference is being recorded today, Wednesday, June 9, 2010. I would now like to turn the conference over to Mr. Ken Dennard with DRG&E. Please go ahead, sir.

Ken Dennard

Thank you, Danny, and good afternoon. We welcome you to the Men’s Wearhouse first quarter 2010 earnings call. Today’s call with management will cover a view of the first quarter results and second quarter financial guidance, followed by a Q&A session.

Please note, the company will be making a number of forward-looking statements today, and all such statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions mentioned today due to a variety of factors that affect the company, including the risks specified in the most recently filed Form 10-K. This call is copyrighted material to Men’s Wearhouse and cannot be rebroadcast without our express written consent.

And now, I’d like to turn the call over to George Zimmer, Chairman and Chief Executive Officer. George?

George Zimmer

Thanks, Ken, and good afternoon. After my remarks and Neill’s financial summary, you will be hearing from Doug Ewert, that’s spelled E-W-E-R-T, the President and Chief Operating Officer of Men’s Wearhouse. Doug and I have worked together for 15 years. He started as our neckwear buyer, worked himself up to GMM and Chief Merchandising Officer of the entire company before becoming President. Doug cut his teeth on Macy’s executive training programs and remained with them mostly in men’s merchandising for 10 years. After his comments, Doug will join Neill and me for the Q&A.

Our bottom line results for the first quarter were significantly ahead of our guidance, as well as prior year results. Positive comparable store sales increases at both Men’s Wearhouse and Moores, coupled with marked improvements in product margins, were the primary drivers to the first quarter upside. The strength of those stores offset an under-plan performance at K&G.

We are experiencing difficulty in getting traction at K&G due to macroeconomic headwinds impacting the men’s business, particularly in tailored clothing and the lack of brand awareness is limiting the expected growth in its ladies categories. Although that category for K&G did produce a mid single-digit comparable store sales increase.

Our investments in marketing will be significant in the second quarter as all three retail divisions will now have new television creative campaigns. Some of you may have already seen the new Men’s Wearhouse and K&G spots. It’s too soon to tell whether these campaigns will be effective but we are pleased with the new look. Of course, all new television will have an internet interpretation as well.

Our Tux program continues to grow even as we close on profitable MW Tux stores. We will continue to evaluate Tux stores as leases expire and selectively open new regular Men’s Wearhouse stores about 10 this year, so that the total number of stores offering tuxedo rentals will remain around 1,000.

I believe the operating processes in tuxedo rental are complex. We feel our efforts in this category are also complex and underappreciated. We rent about one in three tuxedos in the United States and Canada. The customer service required at that scale of business is extraordinary. Of course, Men’s Wearhouse is a company, where the work environment allows most ordinary people to give extraordinary customer service.

Our overall performance for the first half of the fiscal year’s expected result in modest topline growth and significant improvement in gross profit, some of which will be reinvested in brand building and SG&A costs, the resulting increase in operating income is estimated in the high teens.

I’ll now turn the call over to Neill and Doug for more details surrounding the first quarter.

Neill Davis

Thanks, George, and good afternoon, everyone. Earlier today we reported first quarter diluted earnings per common share of $0.26, compared to the prior year quarter of $0.10 per common share. This significant increase as George indicated was driven by a return to positive sales growth in the quarter, a 196 basis point increase in gross profit margins, operating expense leverage of 67 basis points and a lower effective tax rate for the quarter.

Comparable store sales at our Men’s Wearhouse and Men’s Wearhouse and Tux stores increased 2.4%, A&D declined 4.9% and our Canadian business, Moores, increased 20 basis points.

Gross margins before occupancy cost for the first quarter increased 105 basis points to 57.2%. This improvement is driven by retail apparel product margins due primarily to different promotional offerings, as well as, the mix of products on promotion in fiscal 2010, compared to fiscal 2009, as well as lower product costs. Tuxedo rental margins also improved due mainly to a decrease in rental product retirement costs in fiscal 2010.

Occupancy costs declined approximately 4% in absolute dollar terms over the prior year quarter. This decline relates to fewer open stores in fiscal 2010 and a reduction in depreciation, stemming from store related asset impairment charges the company incurred in the fourth quarter of fiscal 2009.

Selling, general and administrative expenses for the quarter were approximately $179.7 million, a slight 20 basis point increase from the prior year. As a percentage of sales, SG&A declined 67 basis points. Marketing costs of $20.9 million declined 6% from the prior year quarter, due primarily to a higher rate of preemption.

Payroll costs of $93.8 million increased 2.2% from the prior year, driven by global reinstatement of base salary increases, as well as headcount additions in support of initiatives in ecommerce and infrastructure projects.

General and administrative costs of $65 million were essentially flat to the prior year. I will say that in the prior year quarter, we wrote-off $1.8 million in store fixturing, stemming from the name change for our mall based tuxedo rental stores. And excluding that prior year item, our overall general and administrative costs then would have increased 2.5% over the prior year.

Effective tax rate for the quarter was 35.8%, which was lower than the prior year rate of 39%, due mainly to the effect of discrete tax items. From an inventory perspective, domestic retail inventories declined 5.5% from prior year levels. Detail inventories in Canada, expressed in Canadian dollars declined 4% and inventories for our corporate wear business at TwinHill increased 6.6%.

Capital expenditures for the quarter were $11.1 million, down from the prior year quarter of 15. And cash and cash equivalents at quarter end was $219.6 million. Those are the key financial highlights for the first quarter and now, I’d like to turn your attention to our outlook for the second quarter of fiscal 2010.

We anticipate comparable store sales at Men’s Wearhouse and Men’s Wearhouse and Tux stores to increase in the low single-digit range. At K&G, we are targeting a decrease in the low to mid single-digit range and at Moores, a flat to low single-digit increase. Included in this outlook is a low double-digit increase in our tuxedo rental revenues.

Total gross profit for the second quarter is expected to increase in the high single-digit range from the prior year. Occupancy costs are expected to decrease in a low single-digit range in absolute dollar terms.

Selling, general and administrative expenses are expected to increase in the high single-digit range from the prior year, excluding $3.2 million of gift card breakage income in the prior year. This year-over-year rate of change in spending is being driven by a significant increase in marketing expenses that George has touched on previously and that Doug will elaborate on in a moment.

Selling and general administrative expenses excluding marketing is planned for an increase in the mid single-digit range over the prior year adjusted quarter. We would then expect GAAP diluted earnings per share to be in a range of $0.75 to $0.78, which compares to the prior year quarter of diluted earnings per share of $0.75.

That covers the quantitative results for the quarter and I will now turn the call to Doug.

Doug Ewert

Thanks, Neill, and good afternoon, everyone. I want to spend a few moments on today’s call to expand on the results that Neill has just covered for you. There are several observations I want to highlight concerning our topline results.

First, the performance of our retail apparel business at our core Men’s Wearhouse stores for the first quarter represented a significant improvement from the fourth quarter of fiscal 2009. I’m aware that there was concern that our promotional activities and the positive response by our customers last year would create a pull forward effect and negatively impact fiscal 2010. Our results in the first quarter are not suggestive of a dilutive trend stemming from those prior year efforts.

Of the various key performance indicators I track, two are of particular importance. Traffic trends and growth rate in new customers, both are exhibiting positive growth rates and are encouraging to me that our strategies are having a positive impact. Specifically, our traffic has reversed trend and is now increasing.

In the first quarter, our traffic increased 5.3%. In fiscal 2009, our traffic count decreased 6.5%. Traffic from existing customers was flat after two years of decline, while new customers were up significantly. In the first quarter, our traffic from new customers was up 9%. In fiscal 2009 both categories were down.

From a product category standpoint, we are seeing meaningful growth in suit separates, sports coats, pants and accessories. Additionally, our younger customers are reacting positively to our modern fitting products in suits, dress shirts and sportswear and we plan to further expand those businesses throughout the year.

As Neill mentioned, our outlook for tuxedo rentals for the second quarter calls for a comparable store increase in the low double digits, as we are seeing a pick-up in the wedding business, which is evident in the rate of building of future rental reservations at our stores. Approximately 99% of our second quarter rental unit plan is currently under reservation.

Complementing these positive trends in the rental business is that after being flat for two years, our rental to retail conversion rate is up significantly. In the first quarter, the number of retail customers who had previously rented a Tux increased 22%. In fiscal 2009, the number of retail customers who had previously rented a Tux was flat.

As many of you on this call are aware, last year represented a significant change in our operating strategies, as we embarked on an elevated promotional strategy from an everyday low price posture. In doing so, our merchants across all divisions worked tirelessly over the course of the year to reengineer our margin structure to be in a position to meet the needs of a more frugal consumer.

The first quarter of this year is reflective of those efforts. Gross margins have expanded just shy of 200 basis points. We will continue to maintain a similar promotional posture this year as we had last year and we’ll closely monitor buying trends and adjust accordingly.

Three weeks ago, we launched a new TV campaign for our Men’s Wearhouse brand created by our new ad agency, Mullen. The new campaign is a significant departure from our historical advertising. The TV commercials are entertaining. They impart new information about shopping at Men’s Wearhouse that will drive new consideration and we believe that most importantly they will bring new customers into the store that perhaps hadn’t considered shopping with us before.

Most people already know that Men’s Wearhouse has great prices. So we focus the new campaign on the other important reasons to shop our stores. Our designer brands like Kenneth Cole, Joseph Abboud and Jones New York, our wide selection of styles fabrics, colors and fits, our huge big and tall offering and most importantly, our unmatched customer service including on-site tailoring in every store.

Beginning in the first quarter, we moved to aggressively increase our ladies presence and de-emphasize the men’s offerings at our K&G stores as we believe that our competitive positioning and the off price channel would be more productive by lessening the heavy focus on men’s tailored clothing in favor of a more active ladies category.

Our initial expectations of those efforts have not been achieved in the first quarter. Although our ladies category produced mid-single digit positive comp store sales, those results were much less than planned. We are making adjustments to our outlook and assume a slower rate of growth in this category.

Our Canadian business continues to perform within expected ranges and our outlook calls for a continuation of the same. Twin Hill, our business unit focused on the corporate wear market, has launched a new catalog to primarily address the hospitality sector and it is being well received.

MW Cleaners business in the Houston market is enjoying better than planned sales results and our expectation is for a continuation of that trend into the second quarter.

That concludes our prepared remarks and we will now open the call to your questions. Operator?

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) Our first question is from the line of Janet Kloppenburg with JJK Research. Please go ahead.

Janet Kloppenburg – JJK Research

Hi, everybody. Congratulations on a good quarter. I wanted to talk first about the SG&A line. I think you had guided up a bit, the advertising up a bit in the first quarter and it came in flat. So is the guidance for the SG&A here in the second quarter for the higher advertising, is that set in stone or could there be some savings there as we look forward as well.

And Doug, I wanted to ask a little bit about the new marketing program and I think the ad is fabulous. It’s interesting to me that you would be going on -- going forward with a brand building program when people like Joseph Banks are highly promotional. So perhaps you could help us understand the advantage to doing this during a time when one of your competitors is so promotional and what we should expect in the future in terms of price promotions? Thanks.

Neill Davis

Hi, Janet. This is Neill. Let me respond to your first question.

Janet Kloppenburg – JJK Research

Right.

Neill Davis

And George will pick up on the second. The under-planned spend in advertising first quarter was related to a higher level of preemptions. And it is likely that we could experience a higher level of preemptions in the second quarter than when we anticipate. It is an item that is difficult to forecast but given what we see in the first quarter, there is the potential that does exist in the second.

Janet Kloppenburg – JJK Research

Right. So you’ve given up just -- good solid conservative guidance and we will see what happens.

Neill Davis

That’s correct.

Janet Kloppenburg – JJK Research

Right. Okay. Thank you.

George Zimmer

And Janet on the second question.

Janet Kloppenburg – JJK Research

Hi, George.

George Zimmer

Hi. We have gone to some expense to make versions of these commercials. There are three different commercials. They each have two separate promotional messages, one of which is now on the air you probably haven’t seen it yet, so that we are going to be running both branding commercials and promotional commercials with our promotional messages focused during the busier times of the year, with branding the rest of the year.

Janet Kloppenburg – JJK Research

Great. That’s a great idea. Am I allowed another question?

Neill Davis

Go ahead.

Janet Kloppenburg – JJK Research

I just wanted to ask about the younger brands like Kenneth Cole, Joseph Abboud et cetera, Jones New York, perhaps without naming brands, I was wondering if there is a plan to increase that assortment level and to drive for a younger customer as we forward, more younger customers as we go forward?

Doug Ewert

Yeah. Janet. We are having great success with younger fitting product. Modern fitting tailored clothing, fitted dress shirts, trimmer fitting sportswear. We are having nice sell-throughs in those categories and it is our plan to expand those assortments throughout this year.

Janet Kloppenburg – JJK Research

Great. Okay. Good luck, you guys.

Neill Davis

Thank you.

Operator

Our next question is from the line of David Mann with Johnson Rice. Please go ahead.

David Mann – Johnson Rice

Yeah. Thank you. Congratulations and I’ve enjoyed the new commercials as well. First question, can you give us a comment on the comps by month at the -- on the last call, you talked about, I guess some strength in February. So if you can give us comps by month and also give us a sense on how the quarter to date trend has gone?

Neill Davis

Well our commentary in the prior quarter, giving the guidance for the first quarter was to give you a sense as to transition from January to February and help those of you better understand this pull forward affect that Doug referred to. We are not in a position to give monthly same store sales numbers. As a rule, we don’t do that in our guidance. I know you would like to have that information but that’s not something we are prepared to offer today.

David Mann – Johnson Rice

Very good. In terms of this uptick in new customers, can you talk a little more about the demographics of that customer and what the ticket you are seeing in terms of spend from that customer.

Doug Ewert

Well, Men’s Wearhouse attracts a very broad demographic of customer. We are seeing a similar average ticket to what we have seen, historically seen last year. So we haven’t really seen much of a change in the average ticket. We are seeing as I pointed out earlier, a dramatic increase in the amount of new customers that have never shopped Men’s Wearhouse before that number is up 9% in the first quarter.

David Mann – Johnson Rice

And then one last question on tuxedo rental, can you give us a sense on how you feel your outlook for the quarter compares to the industry and also at this point in time, what percentage of your plan would you typically feel like you’d have booked?

Doug Ewert

Well, there is no industry reporting so I can’t really comment on how our business is shaping up compared to the competitors out there. But I can tell you that we are certainly pleased with the metrics that we are seeing in our business, our forward reservations, are up nicely and that’s reflected in our plan.

Neill Davis

I might add that, David, to your question, we are seeing our business build faster this year than we did last year at this time.

David Mann – Johnson Rice

Great. Thank you.

Operator

Our next question is from the line of Betty Chen with Wedbush Securities. Please go ahead.

Betty Chen – Wedbush Securities

Thank you. Good afternoon and congratulations on a great quarter. I was wondering if either Neill or Doug, if you can comment on the clothing product margin, it was up nicely in the first quarter and it sounds like the team did very well in buying and planning for these bogo offers. Thinking about the second quarter and even the back half, can we continue to expect this kind of clothing product margin going forward?

And then also separately, I wanted to ask about an article that was out this morning regarding a potential women’s concept that the team may be evaluating. Could you also comment on that before I have another quick follow up as well. Thanks.

Doug Ewert

Okay. Betty, I will tell you that the visibility we have into our margin indicates that we think the second quarter is going to be somewhat similar to the first quarter and we’re not prepared to talk about fall at this time.

George Zimmer

And Betty, I have that article from this morning’s paper. I have a big smile on my face. I guess I would say that if you think the picture is true, then I guess the article is true. Most of the information in the article, which we are researching now where they got this but most of the information is inaccurate. We are not opening up a chain of women’s wear stores. So I don’t know exactly where this came from.

Betty Chen – Wedbush Securities

And then if I could, as a follow up, regarding the tuxedo business, I think you alluded to a very nice rental-to-retail conversion up about 22%. Is this reflective of new customer or some of your older customers also suddenly becoming more aware? What more can you tell us about that and what’s the average ticket there? And competitively, what are you seeing your Tux competition doing, especially Joseph A Banks after they launched their program earlier this year?

Doug Ewert

Well, the number that I referred to in the rental-to-retail refers to the percentage of customers that buy at retail from us that have previously rented. And last year that number was flat with the year before, but in the first quarter of this year that number is up 22%. So we are seeing a dramatic increase in the percentage of our customers that have previously rented with us and have now come back to buy something at retail. As far as Joe Banks, I haven’t really heard any numbers on how they are doing, so I can’t really comment on that.

Operator

Thank you. Our next question is from the line of Richard Jaffe with Stifel Nicolaus. Please go ahead.

Richard Jaffe – Stifel Nicolaus

Thanks very much, guys. We say, Stifel Nicolaus. Couple of quick questions on the debt. I assume you will simply use cash balance to pay down that debt this year. Is that a safe assumption, Neill?

Neill Davis

The debt that’s on the balance sheet is a bank term loan that expires in February of 2011 and it’s our current plan to repay that at that time.

Richard Jaffe – Stifel Nicolaus

And could you guys comment on e-commerce, I know you have spoken about being late to the game, but looking to catch up and wondering how that’s coming along, you mentioned separate ads or separate kinds of presentations on the web. But in terms of transactions and driving some business there, could you give us a better sense of how that’s playing out?

George Zimmer

Well, it’s probably the most exciting part of business right now, Richard. Our business is up over 100%. We are designing new a website for K&G, an e-commerce-enabled website, which we don’t believe our competitors use. We are adding personnel and growing Men’s Wearhouse site almost as rapidly as we can and the entire area has become, really the center of the future, if you will. Doug, did you what want to add anything?

Doug Ewert

I would just add that, at Men’s Wearhouse, we are dramatically expanding our assortment on web to include a lot of products that we currently don’t carry in store and going to dramatically distort our big and tall assortment online. We think that our in store customers and those that don’t shop in our stores would really appreciate a much broader assortment from us on the web and so far the initial results are quite promising.

George Zimmer

And if there were to be women’s wear, you would see it on the web first, not in a store.

Richard Jaffe – Stifel Nicolaus

Good to know. And when you guys refer to traffic, it’s really transactions or are you doing just for account?

Dough Ewert

Transactions.

Richard Jaffe – Stifel Nicolaus

Transactions, great. Any thoughts about a buyback, given the cash position and the positive outlook?

Neill Davis

Well, we have an open to buy authorization of $44 million that has remained an open-buy position and we’ll continue to remain in that position. And we will manage our excess cash in ways, we think can help drive growth of our business in the most affective way as we can.

Richard Jaffe – Stifel Nicolaus

Any comments on the alternative store locations they mentioned outlet-type stores, I understand George comment’s on that one.

George Zimmer

We do not understand where they got that information. We’ve had no internal conversations about that. So, I’m sorry.

Richard Jaffe – Stifel Nicolaus

Having not had any conversation us a bout it, what do you think of the idea.

George Zimmer

Well, I did think of it like that when I first saw it today. And I don’t think we are going to go down that path, because I think we want to continue to be able to promote with the 1000 Men’s Wearhouse stores.

Richard Jaffe – Stifel Nicolaus

Got it. Thanks very much.

Operator

Our next question is from the line of Brian Tunick with JP Morgan. Please go ahead.

Ike Boruchow – JP Morgan

This is actually Ike in for Brian. Just want to say you guys are clearly doing a great job of the initiative to drive traffic from the after hours locations to the MW stores and was wondering if you could give a little color, or talk about the planned store closures that you see for the After Hour store closures that you see for the remainder of 2010 and maybe just the kind of recapture rate that you are seeing in Q1 so far.

George Zimmer

Sure, Ike. We currently think that we are going to be closing in the neighborhood of 50 of 60 of the Mw Tux stores this year. We’ve already closed that. I believe its 31 in the Q1. And as far as recapture rate, we believe that we recapture most of the volume from those closed stores.

Ike Boruchow – JP Morgan

Okay. Great

Operator

Our next question is from the line of Laura Champine with Cowen and Company.

Laura Champine – Cowen and Company

Hi, guys. Just first a quick housekeeping for Neill. The tax rate is a little higher in Q2 and then looks like, given the guidance it moves lower for the back half. Is that just because most of the income comes in Q2 or is there something else there that’s different?

Neill Davis

It’s a mix thing. Our Canadian rate is lower than the U.S. rate. So clearly, with the tuxedo rental business seasonal peak being the second quarter, we drive greater mix of revenues and income out of the U.S. in that quarter and that’s why. And it trails off in the back half of the year. It’s a mix dynamic.

Laura Champine – Cowen and Company

And I know that you have more visibility in the Tux business than in the rest of the business. Can you extrapolate for the back half of the year in terms of Tux growth? Do you think that double-digit comp is going to be sustainable?

Neill Davis

I’ll respond to that. This is Neill. We are not in a position to talk about our outlook beyond the second quarter. And I would also just essentially tell you that and remind everyone on the call that the seasonality of the tuxedo rental business is, the peak is in the second quarter followed by the third, followed by the first and then lastly the fourth. So as we move through the back half of the year, the energy that you are seeing in the second quarter will naturally dissipate just because of the seasonality of the business.

Laura Champine – Cowen and Company

Got it. Thank you.

Operator

Our next question is a follow-up question from the line of Janet Kloppenburg with JJK Research. Please go ahead.

Janet Kloppenburg – JJK Research

Hi, everybody. I was wondering if you could just talk a little bit about the change in strategy at K&G to move towards a larger women’s business and overall just maybe a more thorough discussion of their comp trends which seem to be below plan. Was that because of the women’s weakness, was that because of overall traffic declines in both men’s and women’s, perhaps you could help me understand little bit better. Thank you.

Doug Ewert

Sure, Janet. Our strategy this year was to try to dramatically grow our women’s business and not bleed too much of the men’s – as little of the men’s volume off as we could. We picked some key stores, roughly 40 stores where we expanded the women’s assortment to cover about half of the store. We’ve repositioned some of our advertising to give women’s more focus in our advertising than it historically had. And we saw some nice growth in the women’s business. It just didn’t perform to plan yet. So our plans were just clearly too optimistic and we’ve recalibrated those plans now for the balance of the year.

Janet Kloppenburg – JJK Research

But the overall comp trend, could you just talk about that a little bit.

Neill Davis

What do you mean?

Janet Kloppenburg – JJK Research

Well, wasn’t it somewhat below plan, Neill?

Neill Davis

Yeah. That’s what Doug was saying.

Janet Kloppenburg – JJK Research

So it was because of the women’s business, was the men’s business to your expectation?

George Zimmer

Well, I think what we are saying, Janet, is that the ladies had a lower positive comp than planned and the men’s had a larger negative comp than planned. And they balance each other, of course.

Janet Kloppenburg – JJK Research

Right. Of course, of course. Okay. Great. Thanks so much.

Operator

Thank you. (Operator Instructions) Our next question is from the line of Barry Posternak with Ramsey Asset Management. Please go ahead.

Barry Posternak – Ramsey Asset Management

Hi, gentlemen. I just wanted to clarify first on the comment on the gross margin being flat sequentially. Was that referring to the clothing gross margin ex-tuxedo or overall total gross margin?

Neill Davis

I will have to check back at my remarks, but I don’t recall talking about it.

Doug Ewert

I’m sorry. I was talking about the second quarter product margins being similar to first quarter.

Barry Posternak – Ramsey Asset Management

Okay. So product margin includes tuxedo or not?

Neill Davis

No. It does not.

Doug Ewert

Retail product.

Barry Posternak – Ramsey Asset Management

Okay. Retail product. Okay. So it would be down on a year-over-year basis?

Neill Davis

No. The rate of change, the improvement we saw in the first quarter, the pick-up in basis points will be similar in the second quarter. So it’s still a year-over-year increase. It’s just the rate of increase will be similar for the first two quarters.

Barry Posternak – Ramsey Asset Management

I see. Okay. And regarding the upside to the revenue guidance in the quarter, do you think that was due to a better than expected consumer environment or market share gain.

George Zimmer

Well, we don’t really know, of course, but I would say there was, in the first quarter, a stronger consumer sentiment than the second quarter.

Barry Posternak – Ramsey Asset Management

Okay. And have you noted any change in the competitive environment in the department stores, anything they are doing differently in men’s suits?

George Zimmer

Let me just make one other comment, my previous comment should not be interpreted to mean that our business is better or worse in the second quarter than the first. I was just making a comment about consumer sentiment.

Barry Posternak – Ramsey Asset Management

Right. Okay.

Doug Ewert

We haven’t noticed any weakening of the promotional posture of our competitors to date.

Barry Posternak

Okay. All right, Great. Thanks.

Operator

Our next question is a follow-up question from the line of David Mann with Johnson Rice. Please go ahead.

David Mann – Johnson Rice

Yeah. Thanks. In terms of the comp gain in the first quarter, can you talk about any kind of regional differences where that happened, especially some of the markets you called out in the past as being weak?

Neill Davis

David, what I would offer to you is that our larger markets, those of California, Florida and Arizona, still generally underperformed other markets. We have seen more strength in the eastern part of the country, but we believe that that’s largely due to the exiting of a competitor in those geographies over the first half of last year. So that’s somewhat distorting some of the numbers, but otherwise…

George Zimmer

That’s southeast, by the way that would be.

Neill Davis

Thanks, George. Yeah.

David Mann – Johnson Rice

Thank you.

Operator

Our next question is from the line of Betty Chen with Wedbush Securities. Please go ahead.

Betty Chen – Wedbush Securities

Thank you. I had a quick follow-up regarding the Tux business. Doug, I think you mentioned that in the second quarter the Tux business is at, or the reservations are 99% of your plan have been reserved I think. I was wondering if you are referring to the low double-digit sales plan for the second quarter. And also, any additional color regarding average ticket, whether they are still in line with historical patterns, or we had been hearing that some additional accessories, whether it’s top hats or other items have been added this year for prom and whether that could be better for the Tux gross margin. Thanks.

Doug Ewert

Sure. Yeah, Betty. I was referring to 99% of our reservations are currently in the system and that is towards the current plan, the double-digit, small double digit increase plan. As far as the other metrics in tuxedo, we are seeing is a low single digit erosion in average ticket. We believe that the economy plays a factor there plus we are actively advertising our $49 opening price package, so we are seeing quite a bit of activity there. But the units are more than compensating for that average ticket erosion.

Betty Chen – Wedbush Securities

Thank you.

Operator

Management, I show there are no further questions at this time. Please continue with any closing remarks.

George Zimmer

Thanks, everybody. And we will talk to you in the quarter.

Operator

Ladies and gentlemen, this concludes the Men’s Wearhouse first quarter 2010 earnings conference call. Thank you for your participation, you may now disconnect.

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