Casual Male Retail Group, Inc. (NASDAQ: CMRG) sells "big and tall" men's clothing, with 500 store locations throughout the United States, London, England and Canada, along with e-commerce and catalog operations. Casual Male operates under the trade names of Casual Male XL, Rochester Big & Tall Clothing and Sear’s Canada- Casual Male. The company offers hard to find sizes for "big and tall" men in a wide variety of basic casual wear and sportswear. The growing big and tall market size is approximately $6.0 billion in sales annually.
Casual Male is the only national retailer to sell exclusively men's big & tall apparel, which places it in an advantageous position as the obesity rate in the U.S. has grown tremendously in the past twenty years.
Even by the hefty standards of the big and tall market, CMRG's customers are overweight. Nationally, only 35% of male Big & Tall customers have waistlines over 46 inches. However, 75% of CMRG's customers have waistlines larger than 48 inches.  In order to more effectively target customers with 42 - 46 inch waists, CMRG is launching a marketing initiative (through television ads) and launching three independent e-commerce sites that offer a variety of footwear and lifestyle products for men and women in the big & tall segment.
Low operating margins have been commonplace for CMRG, currently at 3.1% due to high SG&A costs and merchandise markdowns as the retailer struggles to sell all of the products on its shelves.
CMRG is the leading specialty retailer of men's big & tall apparel with over $395.17 million in sales in fiscal 2010. The men's big & tall apparel market includes sales of pants with a waist size of 42" and greater and shirts and tops with sizes of XL and greater. Casual Male product assortment includes both national brands, such as Perry Ellis America, Geoffrey Beene, Izod and Reebok as well as in-house brands: Harbor Bay, Synrgy, 626 BLUE and Comfort Zone. Rochester Big & Tall stores offer brands like Burberry, Ermenegildio Zegna, Polo/Ralph Lauren and Tommy Bahama and in-house brands like Rochester 1906 and Castagne.
First Quarter Fiscal 2010 Results (ended May 1, 2010)
Casual Male reported net income of $4.2 million, or $0.09 per diluted share, versus net income of $0.3 million, or $0.01 per diluted share, in the year-ago period. Comparable sales for the quarter decreased 0.7% and total sales decreased 2.6% to $95.0 million. Gross margin improved 330 basis points to 45.9%.
The Company expects to open four Destination XL stores during the second and third quarters of fiscal 2010. The first store, which is scheduled to open July 2010, will be in Schaumburg, Illinois, with stores in Memphis, Tennessee; Las Vegas, Nevada; and Houston, Texas to open by August 2010.
In 2005, 61% of U.S. adults were overweight or obese, up more than 50% in ten years. Additionally, in 2005, all 50 states classified 15% or more of their total adult population as obese, versus four states in 1991. According to the Center for Disease Control, the rate of obesity for the under-30 age group is growing faster than any other segment of the population. These statistics suggest that there is a significant gap between the market share of the big & tall apparel market and the overall percentage of the population classified as overweight.
As 75% of CMRG's sales are to men with 48 inch waists and larger, the majority of CMRG's business is derived from sales to men who would be classified as obese. Because CMRG is a prominent retailer for clothing sized for obese men, the company stands to gain customers and subsequently sales as obesity rates rise in the United States. Obesity is a condition determined by an adult's Body Mass Index, which is a ratio of weight related to height. As the only major national retailer specializing in big & tall apparel and other related merchandise, CMRG stands to gain considerably if the obesity trend continues.
Although CMRG has posted a gross margin above 41% every year since 2003, CMRG currently has an operating margin of only 3.1% CMRG's SG&A (selling, general and administrative) expenses totaled $162.5 million in 2009, representing 41.3% of total revenue. Much of these expenses are tied to write-downs and markdowns of merchandise inventories, which occurs when a retailer is unable to sell its merchandise and either drops its prices or sells the merchandise to discounters and off-price retailers. These expenses significantly detract from profits and prevent CMRG from earning larger operating margins.
In 2007, CMRG launched three new direct-to-consumer catalog and e-commerce business ventures: B&T Factory Direct, LivingXL and ShoesXL. B&T Factory Direct targets value-oriented customers in the men's big & tall apparel market by offering low priced private label merchandise similar to the assortment in Casual Male XL outlet locations. In addition to the B&T Factory Direct website, CMRG circulates 1.5 million B&T Factory Direct catalogs. LivingXL targets big & tall men and women looking for plus-sized lifestyle products, including sports and outdoor accessories, patio furniture, travel and medical accessories and other household items. CMRG circulated 4.2 million LivingXL catalogs in addition to operating the LivingXL e-commerce website. ShoesXL sells a range of men's footwear (casual, athletic, dress, formal) in extended sizes (Men's 12 to 17 with larger widths) from brands such as Timberland Company (TBL), Calvin Klein and Lacoste.
Approximately 65% of the men's big & tall apparel market in the United States is composed of sales to customers with waist sizes between 42" and 46". However, this segment accounted for only about 25% of CMRG's sales. Rather than shopping at CMRG's specialty big & tall stores, these customers are shopping through other channels, such as catalogs and big & tall departments at mainstream department stores. In order to capture sales from this customer segment, CMRG has increased its marketing and advertising expenditures to 8% of sales to develop and launch a television ad campaign that is specifically directed at this 42-46" waist customer for 2008.
CMRG is the only national specialty retailer of men's big & tall apparel. The second largest specialty big & tall apparel retailer was Dahle's Big & Tall, which CMRG acquired in 2008. As such, CMRG's direct competition comes from big & tall direct marketers who reach customers through catalogs and e-commerce operations and department stores and discount stores and mass merchandisers with big & tall departments.
Big & Tall Direct Marketers: