Destination XL Group, Inc. Reports First Quarter Financial Results
First Quarter Financial Highlights
- Total sales for the first quarter were
$111.5 million, up 94.8% from $57.2 millionin the first quarter of fiscal 2020 and down 1.3% from $113.0 millionin the first quarter of fiscal 2019. Compared to the first quarter of fiscal 2019, comparable sales increased 3.7%.
- Cash Flow from operations for the first three months was
$7.8 millionas compared to the first quarter of fiscal 2020 of $(16.8) millionand the first quarter of fiscal 2019 of $(16.5) million.
- Free Cash Flow was
$7.0 millionas compared to $(18.4) millionin the first quarter of 2020 and $(20.2) millionin the first quarter of fiscal 2019.
- Net income for the first quarter was
$8.7 million, or $0.14per diluted share, as compared to a net loss of $(41.7) million, or $(0.82)per diluted share, in the first quarter of fiscal 2020 and a net loss of $(3.1) million, or $(0.06)per diluted share, in the first quarter of fiscal 2019.
- Adjusted net income for the first quarter was
$0.09per diluted share as compared to an adjusted net loss of $(0.37)per diluted share in the first quarter of fiscal 2020 and an adjusted net loss of $(0.04)per diluted share, in the first quarter of fiscal 2019.
- Adjusted EBITDA for the first quarter was
$13.7 millioncompared to $(18.9) millionin the first quarter of fiscal 2020 and $4.8 millionin the first quarter of fiscal 2019.
May 1, 2021, total debt, net of cash was $44.3 millionas compared to $68.2 millionat May 2, 2020and $72.3 millionat May 4, 2019. Remaining availability under our credit facility was $51.1 millionat May 1, 2021as compared to $16.8 millionat May 2, 2020and $32.2 millionat May 4, 2019.
“We are both fortunate and grateful that we can report to you today that we have seen an acceleration in our business and financial results for the first quarter, which exceeded our expectations,” said
“I’m also pleased to report that, as a result of the sales trends we are experiencing, we are raising our guidance for 2021. Our revised forecast remains cautiously optimistic as sales could be negatively impacted by the spread of COVID variants, prolonged restrictions and potential store closures, but we are excited to see our existing customers return and new customers experience DXL for the first time. We are engaging with our customers in what we do best, empowering big and tall men to look good and feel good, creating memorable experiences like no one else does. We get him, we respect him, and we root for him. We are truly grateful and proud of what our team has accomplished over the past 18 months and the credit goes to our employees who answered the call day-in and day-out to serve and support our big and tall guys,”
First Quarter Results
In addition to referring to fiscal 2020, the following review of our first quarter results for fiscal 2021 also includes comparisons to our first quarter results for fiscal 2019. Due to the COVID-19 pandemic and its impact on our results during the first quarter of fiscal 2020, we believe that comparisons to our results from the first quarter of fiscal 2019 are more informative.
Total sales for the first quarter of fiscal 2021 were
As compared to the first quarter of fiscal 2019, comparable sales for the quarter were up 3.7% driven by our direct business, which was up 40.7%, partially offset by our stores, which were down 6.7%. The increase in our direct business was principally due to our DXL.com e-commerce site, which had a sales increase of 55.8% as compared to the first quarter of fiscal 2019.
We started to see significant improvements, which exceeded our expectations, beginning in mid-March due in part to stimulus checks, the vaccine rollout, the loosening of restrictions in some parts of the country and the arrival of warm spring weather. The conversion rate and dollars per transactions were both higher than in 2019 and, while still down as compared to fiscal 2019, we saw store traffic improve over the course of the first quarter. Regionally, we saw the strongest sales improvement in the southeast, south central and mid-west regions, whereas stores in the northeast and west coast, where tighter restrictions were still in place, trailed approximately 800 basis points.
Sales from our wholesale business increased
For the first quarter of fiscal 2021, our gross margin rate, inclusive of occupancy costs, was 45.6% as compared to a gross margin rate of 23.1% for first quarter of fiscal 2020 and 43.7% for the first quarter of fiscal 2019.
As compared to fiscal 2019, our gross margin rate improved by 1.9%, primarily driven by a 2.2% improvement in occupancy costs, partially offset by a decrease in merchandise margins of 0.3%. In fiscal 2020, we began working with our landlords to renegotiate our current lease agreements given the decrease in sales. Occupancy costs for the quarter decreased
Selling, General & Administrative
As a percentage of sales, SG&A (selling, general and administrative) expenses for the first quarter of fiscal 2021 were 33.3% as compared to 56.1% for the first quarter of fiscal 2020 and 39.5% for the first quarter of fiscal 2019.
SG&A expenses decreased by
Management views SG&A expenses through two primary cost centers: Customer Facing Costs and Corporate Support Costs. Customer Facing Costs, which include store payroll, marketing and other store and direct operating costs, represented 17.9% of sales in the first quarter of fiscal 2021 as compared to 22.6% of sales in the first quarter of fiscal 2019. Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 15.4% of sales in the first quarter of fiscal 2021 compared to 16.9% of sales in the first quarter of fiscal 2019.
Impairment of Assets
During the first quarter of fiscal 2021, the Company recorded a non-cash gain of
Net Income (Loss)
For the first quarter of fiscal 2021, we had net income of
On a non-GAAP basis, adjusting for asset impairment charges, CEO transition costs and a normalized tax rate of 26% for all periods, adjusted net income for the first quarter of fiscal 2021 was
Adjusted EBITDA, a non-GAAP measure, for the first quarter of fiscal 2021 were
Adjusted EBITDA is calculated as earnings before interest, taxes, depreciation and amortization and adjusted for asset impairment charges and CEO transition costs, if applicable.
Cash flow from operations for the first three months of fiscal 2021 was
Our capital expenditures for fiscal 2021 will be limited to maintenance capital necessary to support our business strategy and we have no new or remodeled stores planned for fiscal 2021.
|For the three months ended|
|Cash flow from operating activities (GAAP basis)||$||7.8||$||(16.8||)||$||(16.5||)|
|Free Cash Flow (non-GAAP basis)||$||7.0||$||(18.4||)||$||(20.2||)|
Adjusted EBITDA, adjusted net income (loss), adjusted net income (loss) per diluted share and free cash flow are non-GAAP financial measures. Please see “Non-GAAP Measures” below and reconciliations of these non-GAAP measures to the comparable GAAP measures that follow in the tables below.
Balance Sheet & Liquidity
At the end of the first quarter of fiscal 2021, we had a cash balance of
Retail Store Information
Total retail square footage has steadily decreased since the end of fiscal 2018:
|Year End 2018||Year End 2019||Year End 2020||At
We do not plan to open any new stores or rebrand any of our Casual Male XL stores during fiscal 2021. We have 155 stores that have leases with either a natural lease expiration or a kick-out option within the next two years. This provides us an opportunity to right size our store portfolio, through ongoing lease renegotiations or lease-term expirations, to ensure that we are optimizing our store profitability and omni-channel distribution. Since the beginning of fiscal 2020, we have renegotiated approximately 115 of our store leases that we expect will deliver over
The Company distributes its licensed branded and private label products directly to consumers through its stores, website and third-party marketplaces. E-commerce sales, which we also refer to as direct sales, are defined as sales that originate online, whether through our website, at the store level or through a third-party marketplace. Our direct business is a critical component of our business. Through its growth in fiscal 2020, it played a vital role in enabling us to continue to engage with our customers during the pandemic. We expect to see continued growth in fiscal 2021. For the first quarter of fiscal 2021, our direct sales were
Based on our sales performance in the first quarter of fiscal 2021, we are increasing our guidance for fiscal 2021. While our first quarter sales outperformed our expectations, we remain cautious that the current sales trend may shift for a number of reasons, including increased spread of variants of the COVID-19 virus that may result in prolonged restrictions, store closures and reduced demand for apparel.
Our revised guidance for fiscal 2021 is as follows:
- Sales of approximately
$415.0 millionto $435.0 million(an increase from our original guidance of approximately $385.0 millionto $402.0 million).
- Adjusted EBITDA of approximately
$20.0 millionto $30.0 million(an increase from our original guidance of approximately $11.0 millionto $18.0 million).
- Positive free cash flow (unchanged).
The Company will hold a conference call to review its financial results today,
During the conference call, the Company may discuss and answer questions concerning business and financial developments and trends. The Company’s responses to questions, as well as other matters discussed during the conference call, may contain or constitute information that has not been disclosed previously.
In addition to financial measures prepared in accordance with
The Company believes that adjusted EBITDA (calculated as earnings before interest, taxes, depreciation and amortization and adjusted for asset impairment charges and CEO transition costs, if applicable) is useful to investors in evaluating its performance and is a key metric to measure profitability and economic productivity. The Company is unable to reconcile the adjusted EBITDA guidance for fiscal 2021 to net income (loss), because certain information necessary for the reconciliation is not available without unreasonable efforts. It is difficult to predict and/or is dependent on future events that are outside of our control. In particular, we are unable to reasonably predict potential asset impairments, because of the ongoing impact of the COVID-19 pandemic on our retail stores.
The Company has fully reserved against its deferred tax assets and, therefore, its net loss is not reflective of earnings assuming a “normal” tax position. In addition, we have added back charges for asset impairment charges and CEO transition costs, if applicable, because it provides comparability of results without these charges. Adjusted net income (loss) provides investors with a useful indication of the financial performance of the business, on a comparative basis, assuming a normalized effective tax rate of 26%.
Free cash flow is a metric that management uses to monitor liquidity. Management believes this metric is important to investors because it demonstrates the Company’s ability to strengthen liquidity while supporting its capital projects and new store growth. Free cash flow is calculated as cash flow from operating activities, less capital expenditures and excludes the mandatory and discretionary repayment of debt.
Certain statements and information contained in this press release constitute forward-looking statements under the federal securities laws, including statements regarding our updated guidance for fiscal 2021, including assumptions with respect to such guidance and expected return to profitability, sales trends given the continuing pandemic and whether demand for apparel will keep pace for fiscal 2021, our strategic initiatives for fiscal 2021, our efforts to right-size our lease structure and store portfolio, expected leverage from reduced operating costs, expected capital expenditures for fiscal 2021, and expected increases in freight costs and certain raw materials. The discussion of forward-looking information requires management of the Company to make certain estimates and assumptions regarding the Company's strategic direction and the effect of such plans on the Company's financial results. The Company's actual results and the implementation of its plans and operations may differ materially from forward-looking statements made by the Company. The Company encourages readers of forward-looking information concerning the Company to refer to its filings with the
Forward-looking statements contained in this press release speak only as of the date of this release. Subsequent events or circumstances occurring after such date may render these statements incomplete or out of date. The Company undertakes no obligation and expressly disclaims any duty to update such statements.
|CONSOLIDATED STATEMENTS OF OPERATIONS|
|(In thousands, except per share data)|
|For the three months ended|
|Cost of goods sold including occupancy||60,661||44,013||63,560|
|Selling, general and administrative||37,118||32,112||44,611|
|Impairment of assets||(652||)||16,335||—|
|CEO transition costs||—||—||702|
|Depreciation and amortization||4,500||5,732||6,338|
|Operating income (loss)||9,867||(40,965||)||(2,238||)|
|Interest expense, net||(1,142||)||(741||)||(864||)|
|Income (loss) before provision (benefit) for income taxes||8,725||(41,706||)||(3,102||)|
|Provision (benefit) for income taxes||28||20||(21||)|
|Net income (loss)||$||8,697||$||(41,726||)||$||(3,081||)|
|Net income (loss) per share - basic and diluted||$||0.14||$||(0.82||)||$||(0.06||)|
|Weighted-average number of common shares outstanding:|
|CONDENSED CONSOLIDATED BALANCE SHEETS|
|Cash and cash equivalents||$||5,843||$||18,997||$||26,147|
|Other current assets||11,052||10,105||6,901|
|Property and equipment, net||52,591||56,552||69,645|
|Operating lease right-of-use assets||130,061||134,321||165,528|
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)|
|Accrued expenses and other liabilities||30,261||29,934||21,024|
|Borrowings under credit facility||33,371||59,521||79,532|
|Stockholders' equity (deficit)||9,484||(4,077||)||17,506|
|Total liabilities and stockholders' equity (deficit)||$||289,685||$||306,755||$||378,305|
|CERTAIN COLUMNS IN THE FOLLOWING TABLES MAY NOT FOOT DUE TO ROUNDING
GAAP TO NON-GAAP RECONCILIATION OF ADJUSTED NET INCOME (LOSS)
AND ADJUSTED NET INCOME (LOSS) PER DILUTED SHARE
|For the three months ended|
|(in thousands, except per share data)|
|Net income (loss) (GAAP basis)||$||8,697||$||0.14||$||(41,726||)||$||(0.82||)||$||(3,081||)||$||(0.06||)|
|Impairment of assets||(652||)||16,335||-|
|CEO transition costs||702|
|Add back actual income tax provision (benefit)||28||20||(21||)|
|Add income tax (provision) benefit, assuming a normal tax rate of 26%||(2,099||)||6,596||624|
|Adjusted net income (loss) (non-GAAP basis)||$||5,974||$||0.09||$||(18,775||)||$||(0.37||)||$||(1,776||)||$||(0.04||)|
|Weighted average number of common shares outstanding on a diluted basis||63,000||50,758||49,602|
|GAAP TO NON-GAAP RECONCILIATION OF ADJUSTED EBITDA
|For the three months ended|
|Net income (loss) (GAAP basis)||$||8.7||$||(41.7||)||$||(3.1||)|
|Impairment of assets||(0.7||)||16.3||-|
|CEO transition costs||-||-||0.7|
|Provision (benefit) for income taxes||-||-||-|
|Depreciation and amortization||4.5||5.7||6.3|
|Adjusted EBITDA (non-GAAP basis)||$||13.7||$||(18.9||)||$||4.8|
|GAAP TO NON-GAAP RECONCILIATION OF FREE CASH FLOW
|For the three months ended||Projected|
|(in millions)||Fiscal 2021|
|Cash flow from operating activities (GAAP basis)||$||7.8||$||(16.8||)||$||(16.5||)||>
|Free Cash Flow (non-GAAP basis)||$||7.0||$||(18.4||)||$||(20.2||)||>
Source: Destination XL Group, Inc.