Back-End Cuts Boost Casual Male’s Profits

Casual Male Retail Group Inc. generated net income of $3.6 million during its second quarter, up from $1.9 million during second quarter 2008. But the company’s sales fell from $113.5 million a year ago to $98.3 million for the current second quarter, which ended Aug. 1.

According to the company, both the retail and direct channels “experienced similar decreases during the second quarter and first six months of fiscal 2009.” Casual Male did not break out retail and direct marketing’s contribution to its revenue in its earnings press release.

Much of the income gains were the result of cutting selling, general and administrative expenses, which dropped from 38.3% of sales a year ago to 36.1% of sales for the quarter just ended. But the company was not as successful in containing its costs of goods sold, which rose from 54.8% of sales a year ago to 55.4%.

Asked during a conference call about mail strategies during the second half of the year, COO/CFO Dennis Hernreich said the number of catalogs and direct mail pieces the company plans to send out to customers during the last six months will be “seasonally higher” than the first half’s levels. And how much prospecting will the company be doing? “Very little” Hernreich said.

Casual Male Retail Group operates Casual Male XL, Rochester Clothing, B&T Factory Direct, Living XL and Shoes XL.

The Bean-Counter’s Take: The net income gain is quite impressive. But it would have been more impressive if the growth had come due to an increase on gross profit on goods sold. Gross profits dipped from 45.2% of sales during second quarter 2008 to 44.6% in the most recent quarter. During the earnings call, Hernreich mentioned being hamstrung by occupancy costs, while president and CEO David Levin indicated that going forward, reduced inventory would result in higher gross margins across all of the company’s operations during the second half of the year. During the quarter just ended, the company’s sales, general and administrative expenses were also reduced by not repeating a mass market Father’s Day television campaign from 2008, Levin said. All well and good, but when the company’s operating income rates as a percentage of sales rises, Wall Street will have even more to cheer about.