Shares of The Men's Wearhouse dropped 7.7% in New York Stock Exchange trading Thursday (16 November), even though the company reported higher sales and profits and beat analysts' expectations in its third-quarter report late Wednesday.

On Wednesday, following the close of the market, Houston-based Men's Wearhouse said that net income for the three months ended 28 October rose 32% to US$31.8m, or 58 cents a diluted share, from $24.1m, or 44 cents, in the 2005 quarter. On average, analysts had expected quarterly earnings of 54 cents.

Sales increased 9.5% to $430.1m from $392.7m last year. Same-store sales rose 4.3% at Men's Wearhouse stores, 0.2% at K&G and a robust 13% at Moores, Men's Wearhouse's Canadian unit.

Analysts and investors appeared concerned over slowing trends in same-store sales - Men's Wearhouse and K&G posted comparable-store gains of 6.3% and 7.8%, respectively, in the year-ago period - as well as what some characterised as a modest projection for fourth-quarter earnings per share of 72 to 76 cents, excluding special items.

The company indicated a cautious approach to fourth-quarter sales as well, projecting between a 1% and 2% increase in the US and a 2-4% increase in Canada.

However, in the third quarter, gross margin increased 291 basis points year over year, to 43.1% of sales from 40.19%.

Men's Wearhouse also disclosed that TwinHill, its corporate apparel unit, won contracts with US Airways and Northwest Airlines that will generate about $40m in revenues over the next four years. Both programmes are scheduled to begin next year.

In the first nine months of the year, net income rose 35.2% to $96.3m, or $1.76 a diluted share, from $71.2m, or $1.28. Sales were up 7.9% to $1.33bn from $1.23bn while comps moved ahead 4.3% versus 6.6% during the first three quarters of 2005.
By Arnold J Karr.