Tailored Brands Q4 Earnings Conference Call: Full Transcript

Operator: Greetings, and welcome to the Tailored Brands Fourth Quarter and Year-End Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require Operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It now my pleasure to introduce your host Kelly Dilts, Senior Vice President of Finance and Investor Relations. Thank you Ms. Dilts, you may begin. Kelly Dilts: Senior Vice President of Finance and Investor Relations: Thanks and good morning everyone. We appreciate your participation this morning in the Tailored Brands conference to discuss fiscal 2015 fourth quarter and full year results. There will be a replay of today's call via webcast on the company's Investor Relations website which is accessible at ir.tailoredbrands.com. Additionally, a recorded telephonic replay will be available until March 17. The information for the dial-in is in the press release we distributed yesterday. Please note that the information on this call speaks only as of today, March 10, 2016, and, therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. In addition, the comments made during the conference call contain forward-looking statements within the meaning of the United States Federal Securities Laws. These forward-looking statements reflect the current views of management. However, various risks, uncertainties and contingencies could cause actual results, performance or achievements to differ materially from those expressed in the statements made by management. The listener or reader is encouraged to read the Company's annual report on Form 10-K and quarterly reports on Forms 10-Q to understand these risks, uncertainties and contingencies. You can access all of these reports on the Tailored Brands website. With me today are Doug Ewert, CEO, and Jon Kimmins, CFO. And now I'd like to turn the call over to Doug. Doug Ewert: Chief Executive Officer: Thanks Kelly. Good morning and thank you for participating in today's conference call. I'd like to discuss several topics today before turning the call over to Jon Kimmins, our CFO to go through the financials. I'll then make a few closing comments and we'll open the call up for Q&A. My comments this morning will cover five topics. First, I'll share my perspectives on Tailored Brands' 2015 results. Second, I'll highlight and outline a series of actions we are taking to improve our operating results. Third, I'll update you on our Jos. A. Bank business. Fourth, I'll discuss the solid results from our other Tailored Brands businesses, and lastly, I'll briefly comment on our new holding company structure, our 2016 guidance and our view of the future. Let me start with my perspectives on 2015. While our fourth quarter and full year results were consistent with our revised guidance, we are disappointed by the Jos. A. Bank performance and our primary focus is to fix that business. I'll discuss Jos. A. Bank in more detail in a minute. But I think it's important to note that 100% of our revenue and profit shortfall in 2015 was due to below expectation performance at Jos. A. Bank. We realize that it's been difficult for you to estimate our profitability by business and we are taking steps to be more transparent. Jon will have more to say on that in his presentation. However, I want to be clear that our non-Jos. A. Bank businesses are performing well and produced revenue and profit growth in 2015 that was slightly better than our expectations. Second, as we mentioned in today's press release, our management team with help from outside consultants has been engaged in a comprehensive operating review, which has led to a profit improvement program to right-size our store base and reduce costs. This plan includes the closure of approximately 250 stores across our entire portfolio during the year. These closures will improve the overall productivity of our investment brick and mortar and provide a better base for future growth. This includes closing 80 to 90 Jos. A. Bank full line stores. These stores are in markets that are over-penetrated and where we believe we can service the Jos. A. Bank core customer from our remaining store base. We will also close all 58 outlet stores for Jos. A. Bank and Men's Wearhouse. We are closing the outlet stores because there was not enough differentiation between our full line stores and the outlets, and they don't make money when you factor in the central overhead. Lastly, we'll close to 100 to 110 Men's Wearhouse Tux stores as a result of our partnership with Macy's. We'll ramp up The Tuxedo Shop at Macy's in 2016 and into 2017. Our profit improvement program also includes extensive cost reductions that will reduce our costs by $50 million this year. This is in addition to previously identified cost synergies. Jon will provide you with more details on this plan later. However, we are determined to right-size the Jos. A. Bank business and re-engineer the organization to drive profitable growth at Tailored Brands. Now let's talk about the Jos. A. Bank business, specifically what happened, what we've learned, what we're doing and what you can expect from us. Let me start by saying that in spite of a challenging start, we continue to believe in the long term potential of Jos. A. Bank. In the near term, however, it's going to take a lot of work and it's our primary focus. The underlying rationale of our Jos. A. Bank acquisition was our desire to increase our market share and capture operational efficiencies. Jos. A. Bank was the second largest men's specialty concept in the US, behind the Men's Wearhouse. The overlap between the Jos. A. Bank customer and the Men's Wearhouse customer base is low. As a result, Jos. A. Bank would be complementary and incremental to portfolio. The Jos. A. Bank customer is an older, more affluent customer who prefers traditional style, while the Men's Wearhouse customer is a younger customer who likes to shop more contemporary styles. Through this acquisition, we further consolidated the market and reached new customers. Once we close the acquisition, we had a comprehensive plan to integrate the back office functions, convert to common systems, achieve the cost synergies, repair the promotional model, and grow the business with new and improved merchandising and marketing. Each aspect of this plan had unique challenges, some of which we could anticipate and others that were less certain. I am pleased to report the work to achieve our estimated $100 million in cost synergies is complete and will now flow through the business as planned. The integration and relocation of the back office systems and functions has been completed, giving us robust reporting and analytical capabilities to better understand, manage, and optimize the business. We were aware that the promotional model we inherited was problematic for a number of reasons. Aggressive quantity discounting damages brand equity, reduces customer loyalty and shopping frequency, limits customer acquisition, resulting closet stuffing and dilutes margin. Our integration plan called for weaning off the most extreme quantity offers over time and relying on revenue synergies to help move toward a promotional model that stimulates both existing and new customers to shop. Specifically, we believe that launching new products and introducing new selling behaviors would offset the impact of weaning off the aggressive Buy One Get Three or more free promotions over time. Beginning in the third quarter of 2015, however, the aggressive promotional model failed faster than anticipated, and we concluded that the best course of action was to accelerate the transition to more sustainable promotional model with higher margins. In October, we ran our final Buy One Get Three Free offer and subsequently saw comp sales drop further than we expected. Compounded by unseasonably warm weather, comparable sales declined 34% in November and 36% in December. Importantly, in spite of our disappointing top line, we are rapidly learning more about the Jos. A. Bank customer and gaining insights into opportunities, fueled by visibility from better systems, analytics and research. For example, we know from our dry cleaning business that the Jos. A. Bank core customer wears our dress clothes 67% of the time, and our casual clothes 40% of the time. We have learned, however, that a large portion of the Buy One Get Three or More Free customers are not our core customer and are less likely to be repeat customers. Current research also suggests to us that 85% of our customers plan to shop with us again. Roughly half of these customers report that they will be back in the market for a new suit within six months and they tell us they'll definitely or likely buy from us. The Jos. A. Bank core customers are baby boomer and has a household in excess of $100,000 per year. His spouse is also a target customer and she frequently shops with him and for him. Only 15% of our customers are Millennials. We believe with targeted marketing and new product offerings including tuxedo rental, we have opportunity to grow this customer segment. Bottom line, we have a loyal customer base that provides with a foundation to grow the business. So here's what we are doing. In addition to the profit improvement plan, we are realigning the organization to support a greater focus on brand management. I've expanded the responsibilities of our [technical difficulty] operating officer Bruce Thorn so that I can work more closely with our brand presidents who will now all report directly to me. As part of this realignment, Mary Beth Blake who was serving us the Tailored Brands President and Chief Merchandising Officer is now taking over as Brand President of Jos. A. Bank replacing the previous Brand President who has left the company. We are enhancing our data scientists' team and continuing to invest in customer research to identify additional opportunities to strengthen the brand and grow the business. We are accelerating our testing agenda to validate innovative go-to-market strategies that attract new customers and give existing customers more reasons to shop. Inherit in this is a refinement of our marketing strategy and redesign of our website. We're leveraging the brand building expertise of our iconic designer Joseph Abboud to help us strengthen the Jos. A. Bank brand. Later this spring we will be launching a new Jos. A. Bank premium collection brand called Reserve designed by Joseph Abboud. This collection will consist of clothing from the finest mills and made in the best factories including our factory here in the U.S. We will also be introducing custom clothing and custom shirts under the Reserve brand. I believe we have made lot of progress, but it's early and we have a lot of work left to do to stabilize and grow Jos. A. Bank. In terms of early signs of progress, January comp sales declined 16% and February comp sales declined 11%. These results are in low volume months. So I caution you against reading too much into them as we expect continued volatility and possibly higher negative comp store sales as we lap aggressive Buy One Get Three Free promotions through Q3. The sequential improvement in our business is being fueled by traffic, better selling behaviors and merchandise improvements. In particular, we are seeing steady success with updated fits, shoes, tuxedo rentals, Big and Tall, and the 1905 collection. Let me be clear, promotions remain important to our Jos. A. Bank marketing efforts. Since moving towards more reasonable and compelling promotions, we've seen the clothing selling margin improve roughly 500 basis points. Now let me turn your attention to the balance of our portfolio where our businesses continue to show strength. Before I do, however, let me note that a key advantage of having a portfolio of brands is that we have the financial flexibility to make the needed changes at Jos. A. Bank. Men's Wearhouse finished the fourth quarter with a 4.3% comp sales increase. This is on top of a strong 6.8% from the previous year and extends our consecutive quarterly comp sales increases to 23 out of the last 24 quarters. List and transactions and average ticket came from exclusive new product introductions like Joseph Abboud and Kenneth Cole, expansion of Omni channel offerings to ship from store and effective marketing and store execution. The Joseph Abboud brand continues to grow. 2015 was our first full year in all stores and we achieved $400 million in brand sales. When we include the revenue generated by our global licensing partners, the Joseph Abboud brand generated $500 million in global brand sales. This year we will continue to drive growth at Men's Wearhouse through new product initiatives that I want to share with you. First, we believe that custom clothing is a big opportunity and we'll expand our Joseph Abboud tailored clothing offerings by adding custom dress shirts. Additionally, we're democratizing custom clothing. We'll introduce a new collection of custom apparel at popular price points and that greatly expands personalization options with exceptional of quality and quick four-week delivery times. Furthering on growth with Millennials who currently account the 33% of our customers, we will introduce a new collection of clothing that speaks uniquely to them. The collection will include the exclusive launch of a fabric technology that will revolutionize body comfort at prices that fit the Millennial budget. Stay tuned for more details on this exciting launch later this year. Finally, this year we'll further advance our Omni channel experience by updating the functionality and effectiveness of our website. This summer we plan to introduce online formal wear and suit rental, and be the first to market with a complete Omni channel solution for the rental customer. Moores finished the fourth quarter with a 2.7% comp sales decrease. This was on top of a strong 8.6% comp increase from the previous year. While we saw a lift in average ticket that came from the same new product introductions from Joseph Abboud and Kenneth Cole, as well as improved store execution, this lift was not able to completely offset macro headwinds in the Canadian economy. This year we'll also expand our offerings at Moores to parallel those at Men's Wearhouse. K&G finished the fourth quarter with a 1.9% comp sales increase. This is on top of a strong 6.8% from the previous year. This was the seventh consecutive quarterly comp sales increase, driven by units per transaction, an indication of the strength of our offerings to the off-price customer. Last year we began testing a smaller footprint store with positive results. This year we'll expand the test into a new market and further our understanding of the longer term growth opportunities at K&G. Though our dry cleaning business is relatively small, we have the leading share in this fragmented industry. We see this business as full of possibility and in innovation lab around the customer experience and synergy opportunities in the apparel life cycle. Our Corporate Apparel business continues to strengthen. Building on our successful uniform business with large global brands like UPS and British Airways, we've been awarded the uniform business with the largest airline in the world, American Airlines. This program will rollout this year and will be the largest uniform rollout that we've ever been awarded. By leveraging our global product development and service platform and backed by the reputation of Tailored Brands, we have a growing pipeline of potential new accounts. Let me now comment on our outlook for 2016. As Jon will discuss in more detail, we view 2016 as a transition year for Tailored Brands as our primary focus will be on stabilizing, resizing and rebuilding the foundation of Jos. A. Bank from a base which we can profitably grow on go forward basis. We believe that the significant sales declines that we saw in the fourth quarter will likely be with us for the next nine months, albeit at lower levels. Accordingly, we expect Jos. A. Bank to lose money for 2016 versus a modest profit in 2015 on an adjusted basis. Once again, we expect the remainder of our core business to perform well based on our trends and new product initiatives combined with the benefit from our cost savings plans. Now I'd like turn the call over to Jon who will discuss our financial results. I will be back with some closing comments before we go into Q&A. Jon Kimmins: EVP, Chief Financial Officer and Treasurer: Thanks Doug. Good morning everyone. I will be covering the financial results for the fourth quarter and the full year. Then I'll provide some details relating to store closures and expense reductions and I then I'll provide some guidance for 2016. Before I start with the results, I'd like to make sure everyone knows that I'll be discussing adjusted numbers today, which eliminate certain costs and non-cash impairment charges that are not reflective of company's ongoing operations. The press release that we issued last night has GAAP results and a reconciliation between GAAP and adjusted results. And of course we'll be filing our Form 10-K in a few weeks. Before I begin discussing our results, let me echo Doug's commentary regarding the steps we are taking to provide a greater degree of transparency into our reported results. One of these steps is to provide more transparency regarding our Jos. A. Bank business. Despite of our efforts to help investors understand the state of Tailored Brands, we recognize that the volatility in Jos. A. Bank has caused some confusion. So, later in this discussion I'll provide an abbreviated 2015 P&L for Jos. A. Bank. This P&L is prepared consistent with the new way Tailored Brands will be reporting segment results starting in 2016. Going forward we will show results of our retail and corporate apparel segment before allocation of certain shared service costs. We will report the shared service costs as a new segment. We expect these unallocated shared service costs for the total company to be between $130 million and $150 million. The Jos. A. Bank summary P&L was prepared on this basis. Again, I'll give you the numbers later in this discussion and we plan to continue to provide this information for the near term until Jos. A. Bank business has stabilized. Importantly, we believe this will be helpful to dimensionalize the swings in Jos. A. Bank profitability for 2015 and its impact on our guidance in 2016. Now let me get into our fourth quarter results. Total sales for the quarter were $825.7 million compared to $928.4 million in the prior year, a decline of 11%. Our revenue decline of $103 million was driven by a $106.8 million decline in the Jos. A. Bank sales on a negative 31.9% comp. Doug has already discussed the JAB business performance in his remarks and I'll provide more detail on our store closing and cost reduction efforts in a minute. Our Men's Wearhouse business reported a total sales increase of 5.3% on solid comp sales increase of 4.3, driven by higher AURs as the mix shifted further toward higher end product. The rental portion of the Men's Wearhouse had positive comps in the quarter of 4.9%. We had a 2.7% decline in comp sales at Moores in addition to an $8.8 million negative sales impact from FX translation on the weaker Canadian dollar. K&G had positive comps of 1.9% for the quarter, but had a slight decrease in total sales due to closed stores. Our Corporate Apparel business was down by $4.7 million and this was due mostly to unfavorable currency translation as well as lower orders with existing U.S. customers. Moving on to gross margins, the total company had an increase of 150 basis points in gross margin before occupancy. This was driven by a strong increase at Jos. A. Bank of 419 basis points, which was the result of moving away from the most aggressive sales handles. We also had margin expansion at Moores and K&G while Men's Wearhouse had a slight decrease due to lower margins on rental as we took a $4.8 million write off of discontinued rental product. Our occupancy costs, which we include in gross margin, was approximately flat to last year in terms of dollars. We did of course see significant deleveraging of this cost at Jos. A. Bank. As Doug discussed previously, we are attempting to right-size the Jos. A. Bank asset base through targeted store closures and I'll give more details on this shortly. In advertising, we spent $2.2 million more this year, predominantly in Men's Wearhouse where we saw a fair return on that spend. For the total company, we saw this expense de-lever by 106 basis points, again due to this deep sales decline at Jos. A. Bank. Other SG&A, excluding one-time impairment charges, which I'll discuss in a moment, was lower than the prior year by $20.8 million. This was driven by a year-on-year increase in realized synergies of $30 million as well as reversals of certain accruals for incentive compensation and some aggressive short-term cost cuts that were put in place to counter the steep earnings drop at Jos. A. Bank. The primary areas of incremental synergy saving were in certain back office payroll and not for resale purchasing. That gets us to operating earnings of $3.9 million for the quarter which is $21 million below the prior year. More than 100% of the operating profit decline was due to the sales decline and de-leverage at Jos. A. Bank. Our quarterly interest expense remains the same at about $26.5 million. So our adjusted EPS for the quarter was a loss of $0.30. Now coming back to the impairment charges, as we announced last night, Tailored Brands took several non-cash charges in Q4. The largest of these charges was $1.15 billion related to the valuation of Jos. A. Bank intangible assets. Intangible asset values are reviewed at least annually and the steep decline in Jos. A. Bank sales resulted in the write off of all Jos. A. Bank goodwill which was $769 million, all of the value ascribed to customer relationships which was $41.5 million, an additional $335.8 million write down in the value of trademarks and the write off of $7 million in lease value that was regionally written up as part of the purchase accounting. The company also took charges related to the planned store closures in 2016. These include a $25.8 million for store assets and $11 million for related inventory. And again, these charges had no impact on cash. For the full year, Tailored Brands still generated over $130 million in cash from operations. Despite the GAAP impairment charges, we remain confident that Jos. A. Bank offers a longer term opportunity to profitably grow our market share in the menswear business. Now I'll briefly review the full year results. Total company sales were $3.5 billion for 2015, which was down from the baseline 2014 by $100 million or 2.8%. Men's Wearhouse and K&G had another year of solid growth and these were partially offset by a decline at Moores, which was mostly due to unfavorable FX translation, and corporate apparel, which also had a decline due to unfavorable FX translation. Importantly, Men's Wearhouse stores generated another strong year of comp gains, increasing 4.9% on a retail clothing comp of 6.8% and a rental comp of negative 0.7%, which was better than the previous rental guidance we had given. The decline in our annual sales was largely driven by a $161 million decline at Jos. A. Bank, driven by a negative 16.4% comp for the year. Gross margin was approximately flat at 42.9% compared to baseline 2014. Jos. A. Bank had some improvement in selling margin in the third and fourth quarters, but for the year the de-levered occupancy costs still caused the gross margin rate to decline slightly. Advertising expense increased by $14.6 million in 2015, representing 5.9% of sales, which was up 57 basis points from 5.3% in 2014. This was planned and mostly used to support certain brand advertising earlier in the year. SG&A, excluding advertising, was down 15.9 for the year. We saw normal expense increases in more areas with slightly higher increases in benefits and store payroll. Store payroll increased modestly due to the higher sales at Men's Wearhouse. This is typical as we have a significant part of our store payroll costs on a variable commission structure. Unfortunately, the variability on the downside of sales at Jos. A. Bank was limited. So for the total Tailored Brands, we had an increased store payroll on lower overall sales. These cost increases were more than offset by the synergies we promised and achieved after the acquisition of Jos. A. Bank. For the year, our SG&A cost synergies were about $25 million higher than the prior year. Despite these cost reductions, we still saw a de-leverage for the year as SG&A represented about 30.2% of sales, an increase of 40 basis points from 29.8% in 2014. Total realized synergies for 2015 across all cost categories were $54 million and we ended the year with more than $75 million on a run rate basis. Operating earnings for the year were $238.5 million, down from 2015 baseline by $41.9 million, representing a 15% decline. The full year drop in operating profit was more than accounted for by the profit decline at Jos. A. Bank, which was roughly $50 million lower than 2014. All other businesses performed well in 2015 although both Moores and Corporate Apparel has slightly lower earnings due to currency fluctuation. Our interest expense was essentially the same as baseline 2014 and our tax rate was approximately 1% lower than last year. Our adjusted EPS came in at $1.80, which is in the lower end of the last guidance range we gave in early November. As Doug stated in his remarks, we are very disappointed with the decline in earnings compared to the baseline members for last year. Our balance sheet and liquidity remains strong. We ended the year with $30 million in cash and no draw against our revolving credit line. So we still have the full liquidity backstop from that $500 million revolver. Our outstanding debt was $1.66 billion, of which $42.5 million is in the current period liabilities. Inventory ended higher by about $84 million, largely due to the precipitous decline in sales at Jos. A. Bank. We also had modest inventory increases at Men's Wearhouse as the mix shifted to higher cost product and in Corporate Apparel, as they stock up for the launch of the American Airlines uniform contract. Our Jos. A. Bank merchants have already modified new merchandise orders so that we can work through the excess inventory during 2016. We do not expect any write offs relating to this inventory. Now I'd like to provide some more detail about our store closure plans. First, the criteria we use to determine which stores should be closed. For full line Jos. A. Bank stores, we started with a filter of low sales volume and low four wall contribution. We analyzed each of these stores to determine if they are in weak locations or in oversaturated markets. Most of the stores that we will close are in oversaturated markets. In these cases we believe a portion of the sales volume from these stores will transfer to other stores in the same market. So we anticipate that the overall market will become more profitable with less occupancy costs. For the Jos. A. Bank and Men's Wearhouse outlet stores, we analyze the businesses as a whole and determine if the outlet business was losing money on a fully-casted basis. While a couple of stores are fairly profitable, the total outlet business provides very little four-wall profit. The criteria for closing the MW Tux stores was the same criteria we have used ever since we acquired these stores almost nine years ago. As we have built out our full line stores which includes tuxedo rental, we've been able to close nearby MW Tux stores and realize as much as a 70% transfer of the rental revenue into these full lines stores. We've closed approximately 350 of these stores over a 9 year period. Now with the addition of over 500 Jos. A. Bank doors offering Tux and a new partnership with Macy's for 300 more tuxedo shops, we feel comfortable closing the majority of the remaining MW Tux stores. Clearly, this is a significantly more asset-efficient business model for our Tux business. Now, as to timing, of the 80 to 90 full-line Jos. A. Bank stores that we've targeted, roughly 25 to 30 of these stores have lease expirations this year and will close accordingly through the year. The remaining stores will close in January of 2017. The factory and outlet stores will close around June or July. This timing gives us the best chance to work through most of the inventory in these stores and optimize cash flow. The MW Tux stores are targeted to close around the end of the third quarter. This will enable us to maximize wedding rentals, while the new Macy's Tux shops are in development. So again, the total closures are approximately 250 stores, the majority of which will close in the third and fourth quarters of 2016. We expect to spend between $40 million and $50 million in cash this year to terminate leases. We'll update the store closure plans if there are any material differences from what we have just described. Now moving on to other cost reductions that Doug mentioned. Over the past few months, we've reviewed our entire organization. in order to maximize our operating efficiency and identify the series of cost reduction opportunities, covering distribution, store cost and headquarter costs. The impact of these savings will be approximately $50 million in 2016. To be clear, these savings will be in addition to the synergies that we have been discussing since the acquisition of Jos. A. Bank. In July of 2014, we estimated that we could achieve $100 million in annual cost synergies by the end of 2016. We realized almost $55 million in 2015. This will grow to about $85 million in 2016 and we will achieve the full amount in 2017. This work has been done and the benefits will be realized as promised. So again the $50 million that we are discussing now is in addition to these synergies. Moving on to guidance, clearly there are many moving pieces for Tailored Brands in 2016 and we recognize that it's difficult for investors to understand the impact of all of these moving parts. So, as Doug and I have mentioned, we want to be as transparent as possible into our business. First, as promised, we want to help investor dimensionalize the Jos. A. Bank business. So here is the 2015 Jos. A. Bank P&A in five numbers. Sales were $867 million, gross margin before occupancy was $486 million, occupancy costs were $151 million, other SG&A was $289 million, for EBIT of $46 million. As I mentioned earlier, this even amount excludes certain shared service costs that Tailored Brands will be reporting as a new segment starting in 2016. Let me also mention that going forward we will be providing comp sales information for the full line business of Jos. A. Bank so that investors have visibility into the business without the factory stores that we will be closing this year. Now, as to our EPS guidance for 2016, we expect adjusted EPS to be in the range of $1.55 to $1.85. Our core assumption is that the operating earnings in 2016 will be roughly the same as 2015. Let me try to bridge this starting with our adjusted 2015 operating earnings of approximately $239 million. Through our group of retail businesses excluding Jos. A. Bank, we are planning for low single digit comp sales growth and modest gross margin improvements in the Men's Wearhouse and K&G divisions, and flat to low negative comps for Moores in Canada. These businesses are facing material headwinds from two sources. One, the first year of the Macy's Tux rollout will lose money for our Men's Wearhouse brand as the expected rental revenues won't cover the operating costs. This loss is approximately $10 million. Two, some of the short-term cost cuts in Q4 of '15 as well as the reversals of incentive compensation that we made in Q4 '15 due to the weak performance are not planned for 2016. So, the negative impact for these items on 2016 is also approximately $10 million. So while these retail brands are expected to have further growth in comp sales and gross margin, and benefit from a portion of incremental cost synergies, the net change in operating earnings after the two headwinds I just mentioned is relatively flat year-over-year. We expect a very strong year from our Corporate Apparel business. As Doug said, we are rolling out a very large uniform program for American Airlines this year. We expect an increase in operating income from this and other initiatives in the Corporate Apparel business of up to $10 million. Our forecasted results for Jos. A. Bank are negative. For fiscal 2016, we expect a mid-teens comp decline. This combined with the lost sales from closed stores for the partial year will cost total sales at Jos. A. Bank to decline in the ballpark of $150 million. As you might imagine, this is the most difficult number to forecast for 2016 and this is the main reason for the relatively wide range of our EPS guidance. While we are confident that Jos. A. Bank selling margins will increase significantly as a result of the cost synergies and the higher AURs, many other costs that go into our gross margin calculation will go up and/or de-lever due to the sales declines. So gross margin before occupancy is only expected to grow modestly for 2016. Bottom line for Jos. A. Bank, we anticipate that the brand will operate at a loss in 2016 and our estimated decline in operating income for 2016 versus 2015 will be on the order of $60 million. Given the near-term uncertainty around the pace and timing of the Jos. A. Bank recovery, we are sensitive that the 2016 decline could be higher which is reflected in the low end of our 2016 EPS guidance. Now as to our efforts to mitigate this drop in the Jos. A. Bank business. We are closing a lot of unproductive and lower producing Jos. A. Bank stores as we described earlier. These stores on an annualized basis would have generated revenue of about $80 million that would have had four wall gross margin of approximately $50 million and would carry four wall direct expenses of about $60 million. So these closures will be accretive to earnings in future years even before considering the partial sales recapture that we expect in many markets. For 2016, the impact to operating earnings from these store closures is expected to be neutral. As we have mentioned, the majority of the Jos. A. Bank store closing happened late in the year. So the impact on 2016 will only be about $20 million. To be clear, of the $150 million expected decline in 2016 Jos. A. Bank sales, roughly 130 is from our estimated mid-teens decline in comp sales and the additional $20 million comes from store closings late in the year as I just mentioned. We also, as I mentioned, have put in those in a significant cost cutting in program that should provide $50 million in savings this year. So to summarize this bridge, our retail brands excluding Jos. A. Bank will have flattish operating earnings. Solid underlying performance will be offset by the $20 million in negative impacts from Macy's Tux and some non-recurring savings from 2015. Our corporate apparel business will grow operating earnings by approximately $10 million. We expect Jos. A. Bank operating earnings to decline by about $60 million and we expect our 2016 cost reduction initiatives to save about $50 million this year. This gets us near the top of our guidance range and the bottom of the range reflects the ongoing uncertainty around Jos. A. Bank. Now before I turn the call back to Doug, I'd like to provide a few more guidance metrics for 2016. We expect the adjusted tax rate for 2016 to be slightly higher at about 35%. As to some of the key cash flow items, we expect to spend approximately $120 million in capital expenditures including the construction of an addition to our Houston distribution facility and the build out of the Macy's Tux shops. In addition, to CapEx, we expect to spend $45 million to $60 million in cash costs to exit stores and realize certain expense savings. We expect a decrease in working capital as we work down inventories and collect some tax receivables, and we plan to repay approximately $42 million in debt, most of which will be repaid in May. I should point out that the guidance we've just provided supersedes all previous guidance that the company has given. Thank you again for your time this morning and let me turn the call back to Doug for a few closing remarks before we open it up to Q&A. Doug Ewert: Thank you Jon. We're in a transitional time with Jos. A. Bank as we work through the dynamics of a broken business model, but we're taking actions we think are necessary to restore the brand to health. I've been in the men's retail apparel business for a long time and I truly believe that we can fix the business model and have it become a meaningful contributor to our company's success in the years to come. I'd now like to briefly discuss our decision to implement a holding company structure. We've received a number of questions asking of our change related to the operational issues at Jos. A. Bank, which is not the case. Let me be clear. The process to re-brand and create a holding company structure started when we acquired Joseph Abboud in August of 2013. This structure is designed to promote more effective management of each brand, while advancing more aggressive and profitable growth across our portfolio of brands. So again, the re-branding and holding company structure was in no way related to the performance of Jos. A. Bank. We think of our retail concepts in three distinct ways. Our house of brands businesses include Men's Wearhouse, Moores, and K&G, which offer brands that cover a broad spectrum of consumer stall preferences from an array of top designers. Our branded out concept, Jos. A. Bank expands on an offering for customers with a classic style preference. And our designer brand, Joseph Abboud offers a designer point of view and luxury quality. Our smaller and emerging businesses include our dry cleaning business, which is the key to the closet and extends our relationship with customers through the entire apparel lifecycle. Our Corporate Apparel business allows us to leverage production and service capabilities to penetrate into the global uniform market. This all comes together on a shared services platform that leverages common function and services for each brand. Looking to the future as Tailored Brands, we're guided by our mission to provide a personal, convenient, one of the kind shopping experience with compelling products and world-class service. Today's market place is rapidly evolving to a place which transcends traditional bricks and mortar and embrace the shoppers on their terms and in a very personalized way. I believe that Tailored Brands a uniquely positioned to compete and win in this marketplace. As I've stated before, we are determined to become the most innovative and differentiated retailer men's apparel from our stores to our digital properties, from our customers' visits to our tailors and stylists to their phones and their closets. The unique and differentiated core assets of Tailored Brands extend through the entire product and services ecosystem, from design, manufacturing, selling, renting, tailoring, delivery, cleaning, replacing, updating and recycling. Whether through game-changing innovations such as Omni channel experiences, stores of the future, wardrobe management or variable technology, we believe we are best positioned to transform the way men shop. Talent development and growth is essential to our success and we continue to bring in top leadership talent both on our board and executive team. On that note, I am pleased to announce the addition of Dinesh Lathi to our Tailored Brands Board of Directors. Dinesh is a is highly seasoned digital commerce executive and director whose experiences include leadership role at eBay and One Kings Lane where he is currently the CEO. His deep digital background makes him a key addition for supporting strategic growth. Now Jon and I would like take your questions. Question & Answer Operator: Thank you. We will now be conducting a question-and-answer session. If you'd like to ask a question please press star, one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please ask one question and one follow question and re-queue for additional questions. One moment please while we poll for questions. Our first questions comes from the line of Eddy Plank with Jefferies. Please proceed with your question. Eddy Plank: Jefferies: Hey, thank you. Good morning guys. I guess just a bigger picture question here assuming this year plays out as you plan and you achieve the higher end of your guidance, I guess then how do we think about the longer term earnings potential of the business? Do you have a sense of what a normalized operating margin could be at this point or is it just too early to kind of make that assessment? Doug Ewert: We need to walk before you, Eddy. It's a little too early to make that assessment. I mean, as we look at, for example, Jos. A. Bank long term, we can give you some insights to the drivers. We see selling margins that can be possibly be higher than those at Men's Wearhouse. Tux, we believe, will always be smaller at Jos. A. Banks than Men's Wearhouse. We think we can get to a leveraged occupancy and that this brand can be significantly profitable in the future. But how it all comes together and blends in the future is just going to take us a little more time. Eddy Plank: Okay, that's fair. Then a quick question on Tux biz, if we back out the inventory write down, it looks like the gross margin was up over 500 bps. Can you talk about what drove that? And then maybe your outlook on the health of the business this year, I know you had some challenges last year, just any clearly there will be helpful. Thank you. Doug Ewert: Well, in the Tux business, we did as you might remember in 2015, have some early slowness as we were seeing customers switched moving to retail as opposed to rental. We did see the rental business really pick up some steam in the second half of the year. We've also seen a fairly sizable shift in the suit rental part of the business. And as we look at forward reservations, we're pretty comfortable that we're going to have another good year this year. Eddy Plank: Okay, great, thanks guys. Best of luck. Doug Ewert: Thank you. Operator: Our next question comes from the line of David Mann from Johnson Rice. Please proceed with your question. David Mann: Johnson Rice Yes, thank you, good morning and thanks for all of the detail this morning. A question of Jos. A. Bank, you got the commentary about January and February which were encouraged. So, I am curious can you talk a little more about why you think the business may have improved in these first two months? Obviously you are not necessarily expecting it to be sustainable. What might be the reasons behind that? And then talk about any of the marketing strategy refinement state you alluded to that you are dealing with Jos. A. Bank please. Thank you. Doug Ewert: Thanks David. Well, there is a number of moving parts in the Jos. A. Bank business as we analyze November, December, January, and February. First of all, November and December really got whacked by the unseasonably warm weather in the holiday period. About a third of our drop at Jos. A. Bank was in sweaters and outerwear. As we moved through January and February, we've seen pretty sequential improvement in the business both in average store transactions, units per transactions, average unit retail and so average ticket is trending much better as well. When we look at the assortment and what's driving some of the improvement in business, certainly the shifts we've made in the fits of the product that we carry are helping sales. The shoe business continues to be very strong, the sportswear business is good, sport coats are particularly strong, big and tall product is selling well. And then tux rental, as we look at tux rental, we're going to see a sizeable jump in the tux rental business. But I would just remind you this is off of a pretty low base. But we're certainly starting to see a lot attraction in these areas that we identified early on as revenue synergy and they star to -- and they appear to be starting to really develop now. David Mann: Okay. And then if you could talk about some of the marketing strategy refinements you may be making or some of the tests that you have and any feedback on them? Doug Ewert: Yeah, we've been -- we've obviously been testing a lot of different marketing messagings and are getting much clear on the messages that poll better than others. We are utilizing a segmented approach to our marketing trying to talk to our customers by channel based upon their shopping habits, and we have a lot of opportunity to get much better at that. We are going through some deep-dive analytics right now so that we can come up with a much more thorough differentiated segmented marketing strategy. And just remind that with this brand, direct mail is important, email is important, this is a big online shopping business, and then obviously broadcast is important as well. So a lot of marketing channels to work with and a lot of segments of our customer bases we understand better, the different of pocket customers that we have. Some of the information I provided earlier in the prepared remarks indicate that we have opportunity to grow with the Millennials, that's only about 15% of our business now. We know that we have opportunity to continue to grow in tux rental and we're seeing some data that suggest that we are getting incremental tux business at Jos. A. Banks. It's not just trade off at Men's. We're seeing some nice opportunity with non-tailored clothing customers in the sportswear and dress shirts and accessories categories. Women, we're learning, are an important influencer in this brand. They were doing some pretty in-depth in-store shop alongs and some panel discussions and a woman is a big target customer for us now as we're learning and thinking about how we can more effectively market to that customers as well. So, lot more to come and lots of learning under way, but some pretty exciting opportunities that were uncovered. David Mann: Thanks and good luck this year. Doug Ewert: Thank you David. Operator: Our next question comes from the line of Richard Jaffe with Stifel. Please proceed with your question. Mr. Jaffe, please proceed with your question. Richard Jaffe: Stifel: Sorry about that guys. I'll start again. Kudos to you guys for a very comprehensive plan. Just a couple of detail questions. First, what were January and February comps at Bank's last year? You showed a slowing and the decline and just wondering was that due to comparison to last year? Comparison got easier or could you just provide the color there on last year's comps? And then it sounds like the integration process that you started two years ago August is very nearly complete and will be completely effective and that's exciting but we are still not I guess pushing the top line at Jos. A. Bank and I wonder if you can give some more color on either the promotions or the marketing or the brand imaging that might stimulate traffic and revenues at JAB? Thank you. Doug Ewert: Yeah, first of all, last year's comps. We dropped 10 in January last year and in February we were up nine. Pretty dramatic swings there. And we still have yet to find really reliable to your stack comp trends at Jos. A. Bank or we just caution you against that, lots of moving parts in there. As far as the broader marketing question about branding, we certainly see a lot of opportunity and we've talked about this in the past, to extend the messaging to our customers beyond just price, to stimulate new customers and repeat customers. And we have some plans in the works to supplement some of the work that we started last fall, we went on air with 1905 campaign, speaking to the younger customer on that new collection of product. We went on there with a quality guarantee promise and then there would be new what I call branding marketing efforts launched year that we will tell you more about you later. Richard Jaffe: Thank you. Doug Ewert: Thanks Richard. Operator: Our next question comes from the line of Betty Chen with Mizuho Securities. Please proceed with your question. Betty Chen: Mizuho Securities: Thank you, good morning everyone and thank you for all the details. I was curious in term of Jos. A. Bank, thinking beyond this year, how should we think about the potential sales transfer that we could see from some of the closures? And then on that new base of stores, what are the comps that we would need to see for Jos. A. Banks to see occupancy or SG&A leverage? And then my second, my follow up is we got into Macy's Tux stores beyond this year's impact of about $10 million. Should we expect that business to be profitable after that? Thanks. Jon Kimmins: Hi Betty, it's Jon. We are not going to give the number on the expected transfer. I can tell you that internally we modeled it to be relatively modest. Our experience has been that when we close Men's Wearhouse stores in certain markets that the transfer is pretty strong, but we're not ready to give a number on that. As to the leverage question, when do we leverage occupancy? We also can't answer that yet because right now we have two parts moving. We have -- of course we have to get sales to turnaround, stabilize and start to go up, but also we are continuing to decrease the occupancy costs. So both side of that equation are moving. So I can't tell you right now what type of comp it takes to leverage until we get the occupancy costs down to the proper level. As to the Macy's Tux shops, the first year certainly we know is negative because the way the stores roll out, we missed most of the wedding season. So the rentals clearly won't cover the operating cost. Starting in 2017, we have the opportunity to properly remarket the business along with Macy's, start to generate the rental revenues for the wedding season and then we would of course hope to start to cover the costs, the operating costs. We are not going say when that turns profitable, but we still -- we continue to believe that when it gets past the initial phase, it will be a profitable business. Betty Chen: Jon, can you -- sneaking one more here. How should we think about advertising budget for 2016? Jon Kimmins: We didn't give that number. So, Betty, I don't think I can -- I don't think we are going to give that number. Betty Chen: But directionally can you help us whether back to back could be up or down year-over-year? Doug Ewert: I think similar. Betty Chen: Okay. Great, thank you so much. Operator: Our next question comes from the line of John Cornyn with Cowen. Please proceed with your question. John Cornyn: Cowen & Company: Hey. Good morning everybody. Thanks for taking my question. So Jon I just wanted to talk about the cash flow statement. There is a lot of moving pieces on the income statement between charges of the cash and non-cash. Where do you think free cash flow comes in, starts to come in for 2016 and '17 as some of working capital drags where guards go off I guess and it looks there's been some big working capital drags roughly related to the bank's business which we're trying to understand how the cash flow on the cash flow statement how that's going to relate to some of the debt pay down in next couple of years? Jon Kimmins: Yes I can't give you much past 2016 but for '16 we will generate enough cash to start to pay down debt. We indicated in our comments as well as in our balance sheet that we plan to pay down at least $42.5 million this year on our term loan and the cash is coming from several sources. We are working capital will be a source of cash this year through various tax refunds as well as inventory reductions. So that along with the regular upright in cash flow from operations we will generate enough cash to start to pay down debt this. Now we obviously think that we accelerate that cash flow generation will accelerate dramatically once the bank business is stabilized but we are not prepared to start to give numbers beyond '16. John Cornyn: Okay and just with the store closures can you help us understand how we should model occupancy dollars, I guess both in 2016 and beyond, what the net reduction occupancy dollars would look like over the next two to three years? Jon Kimmins: Well I gave you some numbers for the Joseph Bank stores. That's the most material amount. The closure of the MW Tux stores, those are very small stores but it will move the needle a little bit relative to the size of Men's Wearhouse. It's not that big for the bank I gave you the numbers, I think $50 million was the total cost to operate now that embedded in that as operating with didn't break that out any further. So I don't want to break that into that much detail. John Cornyn: No problem, you just finally, we careful about the new marketing that's going in banks, can you help us understand the timing of when some of the new products touch the flow when we can expect to see them on the cash market expect see that? Doug Ewert: Well lot of it's already there. The extended few assortment the new store assortment, 1905 collection and then the new reserve collection that I talked about in the call this morning will start to appear in the storage and in the second and third quarter. John Cornyn: Okay great. Best of luck. Doug Ewert: Thanks John. Operator: Our next question comes from the line of Janet Kloppenburg with JJK Research. Please proceed with your question. Janet Kloppenburg: JJK Research: Good morning, everyone. John, thanks for all the transparency this morning. That was wonderful. I was wondering if on the Joseph Banks business if you could, if in January and February where you gave us the comp performance, if you could tell us if you had compared against any events and if that was included because that would be encouraging and it was and I was also wondering if Jon, and the number that you gave us about operating income by segment, we have $30 million in incremental synergies costs, was embedded, maybe I missed that. But I didn't know where it was. And Doug, I was wondering about Mary Beth. I think she was running all of merchandising for the company. Is she being going exclusively focus now on the Banks or maybe you clear that up for me. Thanks Doug Ewert: Okay. I will take a couple of those points and then turn it over to Jon here for the rest. As far as BOGO3 activity from a year ago, we have been up against it since we stopped the BOGO3s in October. So there was significant BOGO3 activity in each month that we've lapped so far and will continue up until we lap it in October this year. So that is definitely a part of the headwind that we faced and has been a part of, including January and February, there was BOGO3 headwind in there as well. As far as Mary Beth, we had a structure where she was President of the Tailored Brands and each of the brands presidential reported to her. We felt that this was the best structure to get the integration done and the synergies realized and with the challenges we now face and the size of the turnaround effort at Jos. A. Bank, I've asked Mary Beth to focus her full attention on Jos. A. Bank. She is an excellent merchant and operator and this is really deploying and focusing our talent to be as effective as we can. So I eliminated that holding company level President position. Mary Beth is going to take charge of Jos. A. Bank and lead that effort as Brand President and each of the brand presidents will now report directly to me and I've moved some of my direct reports over to Bruce Thorn, our Chief Operating Officer. So, now Bruce has all of supply chain and all of the customer facing initiatives including stores and Omni channel. And so we are focusing our talent on the urgent opportunities and challenges that we have as an organization. Janet Kloppenburg: Okay. Jon Kimmins: You asked about synergies, were you referring to the change in synergies from 14 to 15 or from 15 to 16? Janet Kloppenburg: I think it's from 85 to -- from 54 to 85, that's 15 to 16. Jon Kimmins: Yeah, okay. So from 15 to 16, of less $30 million, about $20 million of it will show up in cost of goods and most of that in Jos. A. Bank and the other $10 million or so goes through SG&A. And that's basically across all brands and shared services. Janet Kloppenburg: Okay. So, it is embedded in the operating income numbers that you have provided by segment. Jon Kimmins: Correct. Janet Kloppenburg: Okay. And Doug, one more question on the core business. Can you talk about your visibility on the tuxedo rental business, which looks to have had a nice churn and I think there is some suit rentals in there as well. And also just some metrics on the Men's Wearhouse business. AUR has been very healthy. I'm wondering how traffic trends are there. Thank you. Doug Ewert: Yeah. Well, as you know, we have a fair amount of forward visibility into the tuxedo rental business for the year and the numbers look good. We're pretty excited about the opportunity we have in tux this year. We are excited to launch the online tux application later this summer. And then obviously the opportunity we have now to expand into Macy's and get in front of an incremental customer. So I don't want to put numbers around it, but from what we can see into 2016, it looks like we're going to be in pretty good shape. As far as the health of the Men's Wearhouse business, it continues to perform well both from an average transaction value but also in traffic and we're seeing continued growth in average transactions per store as our brands and our brand stories, at Men's Wearhouse are relevant and compelling and we continue to update and freshen the assortment and give customers more reasons to come visit more often and we're seeing an acceleration in how quickly customers come back for the next visit so all the metrics at Men's Wearhouse continue to look really strong. Operator: Our next question comes from the line of with Carla Casella with JP Morgan. Please proceed with your question. Analyst: Hi this is me stepping in for Carla. Most of my questions have been answered but you mentioned that you paid down I believe I heard $42 million in term loans. Do you have any plans to buyback any bonds? Doug Ewert: Not immediately. What we've said is that we're going to pay down at least $42.5 million. So we move that amount into current liabilities that will be paid on the term loan mostly in May, the biggest payment would be made in early May. We may have capacity to reduce that further but we haven't made any statements on that yet. Analyst: Okay thank you. My other questions is you mentioned that when you closed the stores did you expect to pick up the sales from that store and you bank store, what percentage do you expect to pick up? Doug Ewert: We're not giving that number yet. Analyst: Okay. Thanks. Operator: Our next question comes from the line of William Reuter with Bank of America Merrill Lynch. Please proceed with your question. William Reuter: Bank of America Merrill Lynch: Good morning, guys. In terms of the 250 store closures over the next year or two, can you talk about the negative EBITDA drag of those stores would have been? I'm sorry. On the adjusted bank stores, is that what the question is Bill? William Reuter: It's on the total of the adjusted bank stores as well as the outlet stores and the tux stores what the negative EBITDA drag of all 250 would have been? Doug Ewert: Let me break the question into two components. Let's take the tux stores out of that equation because the tux stores are actually they make money. The reason we're closing them because going forward we can transfer that business to other stores and reduce fixed cost and overhead. So it's not that those stores were losing money. On the adjusted bank stores, if you take the full line and the outlet stores and combine it, what I described was on a run rate basis on an ongoing basis, those stores would have generated $50 million in gross margin dollars and they carried about $60 million in direct costs. So that would have been a $10 million drag if we didn't close them. William Reuter: Okay, that's helpful and then just secondarily from me, your SG&A was down in the quarter. I was wondering whether the reduction in SG&A was largely just in sense of compensation either management or store employees to the performance that wasn't as good as would have expected or what some of those reductions in SG&A would have been? Thank you. Doug Ewert: Sure it was down in the neighborhood of $20 million and we can put that into I guess three buckets the biggest of which would be synergies. So an increase in synergies year-on-year and those were the identified synergies back from when we bought bank. The second bucket is as you said the reversal of accruals for executive compensation and then the third bucket was some kind of short term cost cuts that we made just because of the dire circumstances of the quarter with bank. Those were things like cutting back on travel, cutting back on certain management training, things that we don't think are permanent changes but just changes we made in the quarter and that was the third bucket out of the $20 million, the smallest of the three. William Reuter: Great. I'll pass it to others. Thank you. Operator: Our next question comes from the line of Karru Martinson with Deutsche Bank. Please proceed with your question. Karru Martinson: Deutsche Bank: Good morning. When we think of the cadence of the guidance given the store closures will be more in the second half and you got the tough headwinds upfront I mean should we think kind of first half challenging down and then kind of get that back in the second half as you anniversary the BOGO3 and everything else? Doug Ewert: Yes. I would think that's fair. We don't want get into quarterly guidance but we know we are going to face significant headwinds through October and then in Q4 we get to lap these numbers the we just we put up. So I would think that trend line is generally correct. Karru Martinson: Great. I have seen a lot promotions here from buy one get one free buy one get two free, when you are testing all of these promotional offers, where do you see you're getting the most traction with and kind of when you think about that bank customer what are they really responding to? Doug Ewert: Well the customer response to sales the customer response to word free we know that's an important word and we know that there in the quantity discounting is an effective tool with this customer. It's an effective tool at Men's Wearhouse as you know buy one get one free is a very strong handle we use in Men's and in our other businesses and in non-free world we are finding that the customer is responding to a variety of offers that they have seen before that some offers that they haven't seen before. I don't want to get into characterizing one over the other, I think that's some pretty good competitive information I would like to keep but we're pretty encouraged by the sequential improvements that we're seeing in traffic and certainly in average ticket value in the margin that we were seeing and really demonstrating how toxic it was to the business I mean it dragged the entire margin down at least 500 basis points. So it's encouraging to see how the customer is now responding and we're helpful that we're going to get through this relatively smother. Karru Martinson: Thanks very much guys. Appreciate it. Doug Ewert: Thank you.