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The Men's Wearhouse (NYSE:MW)

Q1 2012 Earnings Call

June 06, 2012 5:00 pm ET

Executives

Ken Dennard - Founder and Managing Partner

Neill P. Davis - Chief Financial Officer, Executive Vice President and Treasurer

Douglas S. Ewert - Chief Executive officer, President and Director

George A. Zimmer - Co-Founder and Executive Chairman

Analysts

Janet Kloppenburg

Margaret B. Whitfield - Sterne Agee & Leach Inc., Research Division

Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division

John D. Kernan - Cowen and Company, LLC, Research Division

Ike Boruchow - JP Morgan Chase & Co, Research Division

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

Betty Y. Chen - Wedbush Securities Inc., Research Division

Bruce M. Zessar - Advisory Research Holdings, Inc.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to The Men's Wearhouse First Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Wednesday, June 6, 2012.

And I would now like to turn the conference over to Ken Dennard of DRG&L. Please go ahead.

Ken Dennard

Thanks. Good afternoon, and welcome to The Men's Wearhouse first quarter of fiscal 2012 earnings call. Today's call with management will cover a review of the fiscal first quarter results, guidance for the second quarter and an updated outlook for the full year of 2012, followed by a Q&A session.

Please note, we'll 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 of The Men's Wearhouse and cannot be rebroadcast without our express written consent.

I would now like to turn the call over to Neill Davis, Executive Vice President and Chief Financial Officer. Neill?

Neill P. Davis

Hello, everyone, and thanks for joining our call today. I will begin the discussion with a review of the financial highlights from the first quarter, as well as our updated outlook for the fiscal year. Doug will follow with his thoughts, including more detailed insights surrounding our past and forecasted results.

Total sales increased 1.1% in the quarter, which was in contrast to our plan for a 2% to 2.5% increase. This under-planned result was driven by lower sales within our retail segment, specifically related to our K&G stores.

Retail comp sales growth rates at our flagship brand, The Men's Wearhouse, were muted by less than planned tuxedo rental comps. The strength in retail sales is being influenced by strong gains in our modern fit merchandise categories, while the lower tuxedo rental growth rate is related to an overestimation on our part of the effects stemming from the Easter holiday calendar shift. However, our tuxedo rental results through the first 4 months of the year, which captures the effects of that shift, are on plan. We estimate the drag to the first quarter and likewise benefit to the second quarter as a result of that calendar shift to be approximately $0.02.

Our K&G stores experienced a comp sales decline against a planned modest increase. Although transaction counts per store increased in the quarter, the lower average tickets did not drive sufficient volume to achieve the planned comps.

At Moores, our Canadian group of retail stores, a higher average ticket was the driver to an in-line planned comp sales result for the quarter.

Our corporate apparel segment sales declined 16.4%, which was generally in line with expectations. As we have discussed previously, the timing of the rollout of customer new uniform programs this year versus last is the principal driver to this quarterly year-over-year decline. This timing variance is expected to have a reverse and positive effect in the second half of the year.

Our modest total top line growth in sales for the quarter was supported by gross margin expansion, up 82 basis points year-over-year and modestly below our plan of 90 to 100 basis points. The year-over-year improvement was driven by gains in retail product margins and occupancy leverage. The under-planned performance was related to lower occupancy leverage stemming from the under-planned top line growth rates.

SG&A expenses increased 5.3% over prior year's adjusted SG&A, representing a deleverage of 147 basis points year-over-year. This is a lower expense growth rate than planned, yet a similar level of deleverage. This increased spending is driven by increased investments in marketing and payroll to support e-commerce and technology development, as well as expenses related to sales growth in existing and new stores.

Total inventories rose 16.4% year-over-year. There are a couple of drivers to this pace of growth. First, to replenish comparatively oversold levels in the prior year as we embarked on a more aggressive promotional cadence; and second, to more aggressively pursue the modern fit fashion trends and big and tall size ranges. We continue to expect that year-ending inventory levels will be up in line with related top line growth rates for the year.

Regarding our financial outlook, we are reaffirming our fiscal year '12 earnings per share guidance of $2.70 to $2.78. Although we are lowering our expectations for K&G, we are planning offsetting increases from additional investments in our television marketing campaign in support of the modern fit fashion trend and from other focused merchandise program changes at our Men's Wearhouse stores that we expect to be additive to previous estimates.

As a reminder, the key elements of our initial annual outlook, which remain intact, reflect a muted first half performance over the prior year based on the elevated SG&A investments, as well as the seasonality of our corporate apparel segment. We look for stronger earnings growth in the second half, as we expect stronger gross profit dollar growth from a modestly easier prior year, retail comp sales increase, as well as a double-digit increase in our corporate segment sales. We also will lap some of the incremental SG&A investments, realize benefits of operational integration within our U.K.-based corporate apparel business, and lastly, lower incentive compensation cost, thereby driving strong expense leverage.

Specific guidance for the second quarter calls for a 1% to 2% increase in earnings per share, driven by a low single-digit increase in sales. Gross margin expansion, up 65 to 75 basis points, and a 3.9% to 4.4% increase in SG&A.

That wraps the financial highlights. And I will now turn the call to Doug Ewert, President and CEO.

Douglas S. Ewert

Thank you, Neill. In spite of ongoing difficult macroeconomic conditions and a competitive environment that is characterized by extremely aggressive pricing, we continue to grow our business without significant adjustments to our promotional strategies or merchandise margins.

During the first quarter, our businesses were mostly within range of expectation, and we remain on track to grow our earnings 13% to 17% over the adjusted previous year and 84% to 89% over the adjusted previous 2 years.

Within our retail segment, overall sales increased 3.1% on top of the 10.8% increase the previous year.

At Men's Wearhouse, comp store sales increased 3.8% on top of 10.8% the previous year. We saw a modest 1.1% decrease in comp suit sales. However, that was more than offset by a 22.6% comp increase in sportswear and a 10% comp increase in sport coats.

At Moores, overall comp sales were up 7.1%, driven by a 10.4 comp increase in some sales. At K&G, overall comp sales declined 4%. While our ladies business grew 0.9% and children's grew 16.3%, our men's business declined 5.7%, with the majority of erosion coming from suits.

Overall transactions per store and units per transaction were up. However, the mix shift resulted in a lower average unit price. Our business is trending sequentially stronger in the second quarter. However, we have more work to do to improve the average unit price at K&G.

In all 3 retail divisions, we saw the highest comp increases last year during the first half. The comps are considerably easier as we move through the year. When we evaluate each business on a 2-year comp basis, sales during the first quarter were at the high end of the range that we've seen across the previous 5 quarters. In fact, K&G performed at the highest 2-year comp that we've seen since we began reporting K&G comp store sales.

Our retail segment product margins are running ahead of last year. Though input cost remain near their peak, they are stable. Raw material prices are softening, but they're being largely offset by increased labor rates. We will start to see some cost come down during the back half of this year with continuing decreases expected next year. The overall margin growth rates will moderate as we lap retail price increases during the second and third quarters of last year, though we anticipate margin rates will in the year ahead.

Inventory levels are above last year, at both Men's Wearhouse and Moores, and in line with plan. We have corrected for an oversold position during the first half of last year. And we are funding planned growth in modern fit products at both Men's Wearhouse and Moores. We expect our inventory levels to come in line with overall growth rates during the second half of this year.

At K&G, our inventory levels are down 4.5%, with further reductions planned by the end of the year. Our customers are responding to our aggressive merchandising and marketing strategies that target the modern fit fashion cycle. During the first quarter, our overall modern fit sales increased 32% over the previous year and represented 27% of the total retail sales.

Towards the end of the first quarter, we launched a new TV creative for Men's Wearhouse and Moores that position our stores as a destination for modern dressing and encourages brand consideration among a younger and more trend-sensitive demographic. The feedback from customers has been very positive, and I believe this creative is among the most effective and timely that we have ever produced.

Cross-channel integration includes in-store graphics, online content, e-mail campaigns and a social media contest that utilizes gaming mechanics to encourage customer engagement. This multichannel initiative is producing intended results, including an increase in the number of new customers shopping in our stores and further growth in the number of previous tuxedo rental customers who convert to retail.

During 2011, our U.S. tuxedo rental business grew 3.5%, which was a record year. During the first quarter of this year, our tuxedo rental business grew 7.3%. I believe we continue to grow our share of the tuxedo rental market. We just concluded the most successful prom season we have ever had, with an overall increase of 4.3%.

Looking forward, our future reservations are trending well ahead of last year. Within the last few weeks, we started delivering the first Vera Wang tuxedos, and the response has been very positive. In fact, my son wore one of the first Vera Wang tuxedos for his prom just a few weeks ago, and he reported that he had the sickest tuxedo at his prom. For those of you that don't have teenagers, sick is good.

Future reservations of the exclusive Vera Wang tuxedos are trending ahead of expectation, and all indications are that we have hit a home run. As discussed in previous calls, we see considerable opportunity to develop a more meaningful presence in the online channel to improve the effectiveness of our digital marketing efforts to both attract new customers and deepen relationships with existing customers and to build our brands for the future.

To further those ambitions, we're making investments in both people and technologies. In addition, we've purchased a 116,000 square foot office complex, and we'll be consolidating all of our California-based offices into one location. The purpose is to create an environment that will facilitate an improvement in collaboration between merchandising, marketing, online, store operations and real estate.

Sales in our corporate apparel segment decreased 16.4% in the first quarter from our prior year results, with an additional decline of 17% to 18% expected in the second quarter.

We expect these decreases to be largely offset during the third and fourth quarters as new uniform programs launch later in fiscal 2012 than they did in fiscal 2011. In spite of macroeconomic headwinds in the U.K., we continue to expect our corporate apparel operations, acquired in August of 2010, to be accretive to our fiscal 2012 earnings.

To strengthen our operations at TwinHill, our domestic uniform division, we are aligning leadership and sourcing under our team in the U.K. By creating a single global platform, we believe we are better positioned to compete for new business.

I'm confident that our people are focused and our strategies are right. BOGO is working. Margin is up. Modern fit is strong. Our marketing messages are relevant. Brand enhancing and impacting new customer acquisition. Our tuxedo business is growing, with forward reservations coming in considerably higher than last year. I'm satisfied with our forecast for the remainder of the year, and so we are reaffirming the annual guidance of $2.70 to $2.78 a share.

That concludes our prepared remarks. We will now take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Janet Kloppenburg with JJK Research.

Janet Kloppenburg

My first question is for Neill to clarify a statement about a loss of $0.02 a share. I think that was from the second quarter into the first quarter because of tuxedo rentals, but I'm very unclear about what happened. I thought the shift was supposed to benefit the first quarter, and I'm not sure what happened. And for Doug, if you could just talk a little bit about K&G and the disappointment there, and what your strategies include to perhaps turn around that brand, which has -- it's been one of the least robust of your businesses. So I'm wondering what you guys are thinking about in terms of getting that business back on track.

Neill P. Davis

Janet, it's Neill. As to your first question on the tuxedo rental business, first quarter versus second, we did anticipate a positive shift from the second quarter to the first because of the change in the Easter holiday. We did realize better business but not at a pace that we have eventually realized now that we've moved through the month of May, which captured the full prom season. And as you recall, Doug making a comment, we've had better prom seasons this year. And that benefit is going to be sitting more in the second quarter than the first than what we have planned to the tune of $0.02.

Douglas S. Ewert

Janet, from a K&G standpoint, as I said in my prepared remarks, that the disappointment was essentially in men's suits. I think it's worth noting that in the first quarter of 2011, we sold more suits at K&G than we ever had in any single quarter in the history of the company. And so while we were not able to top that this year, we had one of the strongest quarters in men's suits. And the number of suits we sold this year in the first quarter is just not as high as the seasonal peak or the peak that we have seen in the past. And I think that we do have continued work to do at K&G in merchandising, in marketing, and we're taking a look at all that. But when I take a look at what's selling at K&G and what the forward outlook indicates and what the comp cadence looks like from last year, I think there's clearly some room for improvement, but I'm not overly concerned.

Operator

And our next question comes from the line of Margaret Whitfield with Sterne Agee.

Margaret B. Whitfield - Sterne Agee & Leach Inc., Research Division

Yes, I was wondering if you could discuss the wide variance in the comp performance by category at Men's Wearhouse with the comps and suits down 1% but a huge gain in sportswear and also double digits in sport coats. So the modern fit I guess didn't benefit the suit businesses I might have thought. And also, I wondered if you could give us some thoughts as to what you envision with your reservation for tux rentals in Q3.

Douglas S. Ewert

Well, I would point out that suits at Men's Wearhouse on a 2-year comp basis are still up dramatically, and we are seeing dramatic growth in modern fit. I will remind you that modern fit extends beyond suits and to a lot of other categories that makes this trend a little bit more exciting and more significant than other fashion trends in men's tailored clothing. And we are very pleased with the trend that we're seeing in our Sportswear division. We have focused on sportswear now for a number of years, and to see it really start to pay off is really quite rewarding. Our teams have worked very hard on that, and we think we're heading in the right direction. As far as sport coat goes, we made some pretty significant shifts in the content of our inventory a year ago, and I believe that we are reaping the rewards of that right now.

Margaret B. Whitfield - Sterne Agee & Leach Inc., Research Division

And tux rental in Q3?

Douglas S. Ewert

Oh, forward reservations are looking strong. We have visibility into about -- or we have currently about 70% of our plan remaining for the year under reservation. So we have a fair amount of visibility into it, and it's very strong and running, as I said earlier, ahead of last year.

Operator

And our next question comes from the line of Richard Jaffe with Stifel, Nicolaus.

Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division

And just a follow-on question related to K&G. Clearly, a challenged division. I'm wondering if you could provide a little bit more color on the assortment challenges and what needs to be done from a price point basis. I've seen the 3 for ads, 3 for $199, and wondering what the reaction to that is, and where you think you need to be with K&G?

Douglas S. Ewert

Richard, I think I need to repeat that transactions in the first quarter at K&G were up. Our units per transaction were up, so the metrics overall look solid. And where we saw the erosion was the fact that we weren't able to sell quite as many suits as we had sold in the largest quarter we ever had in the history of the company, and that because they're a higher average ticket, it drags down the average price per unit. So it was somewhat of a mix factor in first quarter. And we are -- we have now anniversary-ed that biggest quarter we've ever had. So I have more confidence in how it's going to look going forward. But that being said, we are continuing to look at our merchandising and our marketing at K&G. I'm just not prepared to get more specific with you right now on what we're considering doing.

George A. Zimmer

Richard, this is George. Enjoy the U.S. Open. And I've been instructed not to talk in detail, but we understand we need to do something at K&G. We have taken the necessary action. We'll talk about it in our next call.

Operator

And our next question comes from the line of John Kernan with Cowen and Company.

John D. Kernan - Cowen and Company, LLC, Research Division

Can you walk us through the inter-quarter comp trends in each concept? It looks like Moores sequentially is decelerating just based on your guidance, yet the fiscal year guidance for Moores remains unchanged. Can you walk us through -- you said you saw a sequential improvement, it sounded like in the prepared comments. Just trying to get inter-quarter trends.

Neill P. Davis

John, this is Neill. As the -- in terms of the sequential improvement quarters, Doug was referring specifically to K&G. The variance in sequential movements of comps from first to second quarters you just asked as it relates to Moores has to do with the fact that we were -- we had a higher level of promotional cadence in the first quarter than what we are currently contemplating in the second. We are also looking for a higher level of activity and promotions for Moores in the fourth quarter, which then is giving rise to similar level of comp outlook for the full year.

John D. Kernan - Cowen and Company, LLC, Research Division

And then The Men's Wearhouse concept inter-quarter comp trends, did they get better as well?

Neill P. Davis

They get better as we go through the year because the prior year easing of the comp growth rates.

Operator

And our next question comes from the line of Ike Boruchow with JPMorgan.

Ike Boruchow - JP Morgan Chase & Co, Research Division

Calling in for Brian today. I guess the question is around -- to John's question, the inter-quarter comp trends, and you seem to have this nice tailwind from the silhouette change and the new marketing behind it. Is there anything that may have changed in the competitive landscape in terms of competitors becoming more promotional that may have impacted your business? Or how should we kind of think about the competitive market?

Douglas S. Ewert

Ike, I don't believe that any changes that may be going on among our competitors right now is impacting us. I'm pretty pleased with how our customers are responding to our value proposition and our marketing messages.

Ike Boruchow - JP Morgan Chase & Co, Research Division

Okay. And also, is there any way you can kind of -- as we move throughout the year, the way you guys are talking about the corporate apparel business in the U.K., can you kind of just help us out to understand the lumpiness just a little bit better?

Douglas S. Ewert

Well, we have -- we've won some new business that we will be rolling out to customers in the back half of this year, whereas last year, those rollouts happened in the front half of the year. So it's essentially just a timing issue.

Operator

And our next question comes from the line of David Mann with Johnson and Rice.

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

Can you talk a little bit about how sales trended during the quarter, during the peak, the peak and shoulder periods as you've talked about in the past?

Douglas S. Ewert

Within the quarter?

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

Yes, during the quarter when you are on promotion versus when you're off, how that trended versus your expectations.

Neill P. Davis

We're happy with how we are comping on a comparable week. The comparable week when we're on a storewide event, and during the periods at which we're not, we continue to perform well. And the trending has been very similar to what we experienced in the fourth quarter of this past year. And I think part of that speaks to what you heard Doug talk about earlier is the strength in our sport coats and our sportswear business beginning to get traction. And with the trend being favored with modern fit, we continue to get improvements in traffic levels during those shoulder periods that you referred to.

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

Now in terms of the marketing that you're doing and your expectation about the silhouette change impacting your business, should we expect that unit sales should be improving over the rest of the year?

Douglas S. Ewert

I'm not sure, David. I think largely, we're talking about a mix shift. We're also attracting a younger customer when we look at our repeat customers in relation to our new customer mix. We're seeing an increase in the number of new customers. We don't have visibility into the age of those customers, but I would -- I think it's not too much of a stretch to hypothesize that an increase in new customer traffic, coupled with the pure amount of modern fit product that we're selling, I believe we're attracting a younger demographic than our existing customer base. But, I will remind you, last year was a record year for us as a company in selling suits. We sold 3 million suits as an organization. So I think it's going to be tough to be confident that we're going to beat that by a significant amount, but I think our business outlook is positive.

Operator

[Operator Instructions] And our next question comes from the line of Betty Chen with Wedbush Securities.

Betty Y. Chen - Wedbush Securities Inc., Research Division

I was wondering, Doug, if you can talk a little bit more about new customers. You mentioned earlier that some of the new marketing had been very effective in getting new customers, and also we've seen an increase in the rental to retail conversion. I think the last time we heard about the conversion figure, it happened maybe somewhere in the mid- to high-teens, if you can kind of maybe update on maybe where that is. And then my second question is regarding the marketing. I think you mentioned in the guidance on the press release that marketing will be increasing. Can you give us a sense how much that will be increasing, and whether that will be primarily targeted towards The Men's Wearhouse, in the Moores brands, or kind of what should we expect in terms of at K&G? And then I have another follow-up after that.

Douglas S. Ewert

Betty, yes, it has been a little while since we've spoken about the RR number, the rental to retail number. In the first quarter of this year, we experienced a rental to retail conversion, or the percentage of new customers that had been previous tuxedo rental customers, up about a little over 10% where it was trending a year ago. It's currently about 20% of our new customers had been previous tuxedo rental customers now. And as far as marketing, we are not prepared to release our marketing spend, but I will tell you that our promotional at Men's Wearhouse, our promotional marketing spend, has been running about flat with the previous year. And there has been an incremental spend with some branding TV support for the modern fit initiative.

Betty Y. Chen - Wedbush Securities Inc., Research Division

Great. And then my follow-up, Doug, is when we think about the composition of the business, I know you mentioned that we're lapping some very high levels of suit sales last year. But how should we think about the gross margin profile for suits versus sport coats or shirts so that we can also have some idea, I guess, in terms of the gross margin opportunity for the rest of the year? And then my last question is just regarding corporate apparel. I know that the timing seems to be just related to the launch dates of the program for this year, which is more second half weighted. How much visibility do we have around that? And is there any sort of color you can also give us regarding the overall U.K. or European macro condition and how that may or may not be impacting the corporate apparel business there?

Douglas S. Ewert

Oh, we're anticipating our product margins to end the year ahead of last year. The pace is going to slow down because we're going to be lapping some retail price increases that were made in the second and third quarter of last year, but we will end the year with higher margins than we had ended last year with. And there's a number of factors. There's many factors that go into the margin formula, Betty. But I would point out that one of the most significant is the effort to clear out a significant number of our sport coats last year so that we could reposition our inventory, and so we're going to get a boost from that.

Neill P. Davis

Yes, Betty. This is Neill. I'll respond to the corporate apparel business. As it concerns our visibility to the back half of the year, there are customer-specific programs that we're gearing up, as we speak, for deliveries in the third and fourth quarter. So this is not a pipeline list of prospects that we're hoping to convert new customers for realization of business in the back half. I mean, our inventory investments are already D.C.-based. And we're, like I said, gearing up for that. So the visibility is quite high. As it relates to macro conditions and the related headwinds in the U.K., they are clearly there. They are reflected in our outlook. But essentially, a flat-type revenue number, although the number we've indicated in our press release being slightly down, that is currency-related. So on a constant exchange rate basis, it's generally flat. And I think our business in the U.K. is holding up quite well, given their leadership position in that industry and in that space and that market. I think we're as well positioned as one could hope for as it relates to competition to deal with those headwinds. And we're optimistic that the team there can continue to try to drive conversion of prospect opportunities to further help deal with that. But make no mistake, there are challenges there. But we think what we've laid out for you for the full part of the year is very achievable.

Operator

And our next question comes from the line of Bruce Zessar with Advisory Research.

Bruce M. Zessar - Advisory Research Holdings, Inc.

I have a couple questions. The first one has to do with the guidance that assumes 51.2 million shares outstanding for the whole year. And it appears, based on this, that it's assuming no additional share buybacks for the rest of the year. Is that just an assumption for the guidance, or should we be expecting that you are not planning to repurchase any shares for the balance of the year? And then the second question had to do with the corporate apparel segment. I think it was mentioned that it is expected to be accretive for the year to earnings per share. And I was wondering if you could give some color on how accretive that would be there with some guidance given back when you made the acquisition 2 years ago. And I wanted to kind of get a sense of once you get through the year, get these new programs growing, how much falls to the bottom line from corporate apparel?

Neill P. Davis

Bruce, this is Neill Davis. I'll respond to some of those. So relative to the share buyback, that's for assumptions relative to forecasting purposes. We, as a company, do not forecast share buybacks, given the rather infrequent nature and magnitude of it unlike other companies. So it's -- that's our normal cadence. As it relates to the contribution of our corporate apparel business, it is accretive. I don't have that number relegated, the top-of-line at the moment. And I'll be more than happy to discuss that after this call. But the expectation going into the acquisition for the second year of contribution was in the 15-plus percent range, and I think we're trailing behind that slightly. And the reason for that is the challenges and the supply chain with increased cost that a lot of folks in the soft line apparel business have been dealing with. And of course, the benefit this year versus last year, 2012 over 2011, are the benefits that we're pushing to the bottom line because of the integration of the operations of the 2 businesses that we did acquire back in late 2010.

Operator

And our next question comes from the line of John Kernan with Cowen and Company.

John D. Kernan - Cowen and Company, LLC, Research Division

Just one follow-up. Obviously, there's a lot of SG&A leverage plan in the back half of the year. Have you run any sensitivity in terms of what comps you would need to achieve that leverage? I mean, have you given yourself some room in terms of comps for the concepts to hit that SG&A leverage?

Neill P. Davis

Yes, I believe there is appropriate level of expectation in our comp guidance for the year to achieve those numbers. I mean, John, one of the big drivers to that fourth quarter leverage is the fact that we reset our incentive compensation going into the year. And we, like most companies, pay for those largely in the fourth quarter. So we've just reset our threshold to the much higher level this time. So the team here has to work a little harder to be able to achieve those stretched targets that we did last year. And so right now, you're seeing the benefits of that lowered comp rate. And that's there almost independent of what happens at the top line. Of course, the top line grows much faster than what we've outlined here. You can look to higher incentive comp, but that's a good thing and I think a place where all of us would like to go.

Operator

And we have a follow-up question from the line of Janet Kloppenburg with JJK Research.

Janet Kloppenburg

I was wondering if you could talk a little bit about this -- about the fact that the sport coat business grew faster than the suit business, and what the factors are behind that besides record suit levels last year, specifically in light of the fact that your advertising appears to be geared towards suits. And I'm wondering what your inventory content looks like if it's appropriately aligned with the category's strengths and weaknesses, and if you're having any thoughts of changing any of your marketing program.

Douglas S. Ewert

Janet, we're -- I think one of the things that we're seeing from the millennial consumer is that they don't look at tailored clothing as traditionally as Generation X. And they -- we're selling more suit separates. We're selling sport coats with slacks. We're selling more denim than we've ever sold, sport coats with denim. I think there's some fundamental fashion trends that help drive sport coat sales and a better inventory position, a cleaner, more focused inventory position in sport coats than we had a year ago right now. And that's all feeding it.

Operator

And we have a follow-up question from Margaret Whitfield with Sterne Agee.

Margaret B. Whitfield - Sterne Agee & Leach Inc., Research Division

Yes, I was wondering if you could comment on how the suit business trended during the first quarter. Was it negative in every month? And I wondered also, what was the impact of K&G to your bottom line in Q1? And finally, do you have any visibility with your bookings into the outlook for at least the first half of next year with corporate apparel?

Douglas S. Ewert

Margaret, I will remind you that our suit business at men's was down about 1% in the first quarter. I don't think that was consistent across all 3 months of the quarter. There was some Easter calendar shift in there. There was some movement around, obviously, within the quarter, but our suit comp was down 1% for the quarter. I will...

Neill P. Davis

As it relates to K&G, what I -- I mean, Margaret, we don't give segment numbers as it relates to our retail brands. What I would tell you to try to help give you a perspective, I think you get a sense that on an annualized basis, K&G's business is roughly $350 million out of the total, give or take some. And it is the lower-margin profile business of all of our retail businesses. So hopefully, some of those elements can give you some perspective as drawing some conclusions as to what the -- an answer to your question might be. But we don't give segment numbers like that.

Douglas S. Ewert

And we're also not prepared to talk about corporate apparel for next year at this point.

Operator

And we have a follow-up question from the line of Bruce Zessar with Advisory Research.

Bruce M. Zessar - Advisory Research Holdings, Inc.

Yes, looking at the guidance for the full year of $2.70 to $2.78 and what you've guided to through the first half of the year, if I take your first quarter earnings and add in your guidance for the second quarter, you get to about $1.64, $1.65, which means the balance of the year has got to be north of $1 in earnings per share for the last 2 quarters. I guess my question is, looking at your plan right now, the fourth quarters of the last 3 fiscal years were all losses. And I'm just wondering whether am I reading this right that you guys are expecting a profit in the fourth quarter this year?

Neill P. Davis

Bruce, it's Neill. You are reading that correctly. We do expect a profit, a nice profit at that. And there are a lot of things that are pushing on that. I mean, we're -- our retail apparel business is improving. It has been sequentially over the last couple of years. We're reestablishing the base of that business since the market downturn in 2008. I made reference to the incentive comp dynamic just a moment ago. But another key element that's been accruing over the years is our rationalization of the store base stemming from the After Hours acquisition, where we're able to retain significant top line numbers, yet at the same time, the fees, occupancy cost, payroll cost of some of those underperforming stores. So you're now beginning to see the cumulative effect of those manifest in the fourth quarter. And those are the elements of what's happening relative to our second half guidance.

Operator

And we have a follow-up question from the line of David Mann with Johnson and Rice.

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

Neill, as it pertains to occupancy, you have a slightly faster growth rate in occupancy costs in the quarter. Can you just give us the sense on how occupancy is going to trend in the rest of the year? And was there anything unusual in Q1?

Neill P. Davis

Relative to Q1, the variances that will occur from quarter-to-quarter will depend on depreciation and the pace at which we bring on stores as well as relocation. Sometimes there's some timing differences. And until those assets are put in service, we don't begin to accrue the depreciation. So that creates some timing anomalies. We do expect occupancy numbers to be up this year because of the faster pace of growth in our Men's Wearhouse stores. I don't have a number off the top of my head. And once again, I'll be more than happy to discuss that in a separate conversation.

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

Okay. I'm just curious because at the -- on the last call, I think you talked about occupancy being flat to slightly down. Is there are some change in the store growth or store closings that you...

Neill P. Davis

A slightly faster pace of growth at Men's Wearhouse.

Operator

Thank you. And at this time, I'm showing no further questions in my queue. I would like to turn the conference back over to management for closing comments.

Douglas S. Ewert

All right. Thank you very much for your interest in our company, and we'll speak to you next quarter.

Operator

Ladies and gentlemen, this does conclude our conference for today. If you'd like to listen to a replay of today's conference, you may do so by dialing (303) 590-3030 and entering the access code of 4539048#. We thank you for your participation. And at this time, you may now disconnect.

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