Destination XL Group, Inc. Reports Second Quarter Financial Results
Strong Sales momentum continues with +3.3% second quarter comparable sales increase
Re-affirms fiscal 2018 guidance
Highlights
- Total sales for the second quarter of
$122.2 million , up$1.1 million or 0.9% from$121.1 million in the prior-year second quarter. - Total comparable sales increased 3.3% for the second quarter.
- Net loss for the quarter was
$(1.2) million , or$(0.02) per diluted share, as compared to prior-year quarter’s net loss of$(3.7) million , or$(0.08) per diluted share. - On a non-GAAP basis, adjusted net income for the second quarter was
$0.01 per diluted share, as compared to adjusted net loss of$(0.03) per diluted share for the prior-year second quarter. - Adjusted EBITDA for the second quarter was
$8.8 million compared to$6.7 million in the prior-year quarter.
Management Comments
“We are pleased to report our third consecutive quarter of positive comparable sales growth with a second quarter increase of 3.3%. The performance was broad-based across channels and all regions of the country and was achieved with 8.4% less inventory than we had a year ago. This was another quarter of successful execution against our strategic initiatives and we are well positioned for continued progress in the second half,” said
“We launched our Spring advertising campaign at the end of the first quarter,” Levin further commented, “and were pleased with how the new campaign resonated with our customers. Our aided brand awareness scores improved, as did other key measures such as emotional connection and intent to shop. Our upgraded website is expected to launch in the next few weeks, which we believe will deliver an optimized experience across all of our digital platforms,” Levin concluded.
Second Quarter Results
Sales
Total sales for the second quarter of fiscal 2018 increased 0.9% to
Gross Margin
For the second quarter of fiscal 2018, our gross margin rate, inclusive of occupancy costs, was 46.3% as compared to a gross margin rate of 46.1% for the second quarter of fiscal 2017. The 20 basis point improvement was due to a 30 basis point decrease in occupancy costs as a percent of sales partially offset by a 10 basis point decrease in merchandise margins. The decrease in merchandise margin was related to an increase in shipping costs, primarily in our direct business. Occupancy costs, as a percentage of sales, improved from leverage on a higher sales base and a decrease of
Selling, General & Administrative
As a percentage of sales, SG&A (selling, general and administrative) expenses for the second quarter of fiscal 2018 were 39.1% as compared to 40.5% for the second quarter of fiscal 2017. On a dollar basis, SG&A 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 operating costs, represented 24.2% of sales in the second quarter of fiscal 2018 as compared to 24.7% of sales in the second quarter of last year. Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 14.9% of sales in the second quarter of fiscal 2018 compared to 15.8% of sales in the second quarter of last year.
Corporate Restructuring
In
As a result of this restructuring, the Company expects to realize savings of approximately
Net Loss
For the second quarter of fiscal 2018, we had a net loss of $(1.2) million, or $(0.02) per diluted share, compared with a net loss of $(3.7) million, or $(0.08) per diluted share, for the second quarter of fiscal 2017.
On a non-GAAP basis, adjusting for the restructuring charge in the second quarter of fiscal 2018 and the asset impairment charge in the second quarter of fiscal 2017, adjusted net income per share, assuming a normalized tax rate of 26%, was
Adjusted EBITDA
Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), a non-GAAP measure, for the second quarter of fiscal 2018 were
Cash Flow
Cash Flow from operations for the first six months of fiscal 2018 was
Capital expenditures for the first six months of fiscal 2018 decreased to
For the six months ended | ||||||||
(in millions) | August 4, 2018 | July 29, 2017 | ||||||
Cash flow from operating activities (GAAP basis) | $ | 6.8 | $ | 14.3 | ||||
Capital expenditures, infrastructure projects | (6.1 | ) | (3.6 | ) | ||||
Capital expenditures for DXL stores | (1.3 | ) | (10.2 | ) | ||||
Free Cash Flow (non-GAAP basis) | $ | (0.6 | ) | $ | 0.6 | |||
Non-GAAP Measures
EBITDA, 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
During the second quarter of fiscal 2018, the Company amended and restated its credit facility. The amendment extended the term of the credit facility from
At
Inventory was
Retail Store Information
For the first six months of fiscal 2018, the Company opened two new DXL stores, one DXL outlet store, rebranded three Casual Male XL stores to DXL and closed seven Casual Male XL stores, three Casual Male XL outlets and one DXL store. Total retail square footage has remained relatively constant since the end of fiscal 2016:
Year End 2016 | Year End 2017 | At August 4, 2018 | Year End 2018E | |||||||||||||||||||||
# of Stores |
Sq Ft. (000’s) |
# of Stores |
Sq Ft. (000’s) |
# of Stores |
Sq Ft. (000’s) |
# of Stores |
Sq Ft. (000’s) |
|||||||||||||||||
DXL retail | 192 | 1,542 | 212 | 1,665 | 216 | 1,683 | 216 | 1,683 | ||||||||||||||||
DXL outlets | 13 | 66 | 14 | 72 | 15 | 78 | 15 | 78 | ||||||||||||||||
CMXL retail | 97 | 340 | 78 | 268 | 68 | 230 | 66 | 221 | ||||||||||||||||
CMXL outlets | 36 | 113 | 33 | 103 | 30 | 91 | 30 | 91 | ||||||||||||||||
Rochester Clothing | 5 | 51 | 5 | 51 | 5 | 51 | 5 | 51 | ||||||||||||||||
Total | 343 | 2,112 | 342 | 2,159 | 334 | 2,133 | 332 | 2,124 | ||||||||||||||||
E-Commerce Information
The Company distributes its licensed branded and private label products directly to consumers through its stores, website and third-party marketplaces. As the Company continues to invest in its digital capabilities, management believes it is important to monitor the total percentage of revenue that is facilitated by the Company’s e-commerce systems, regardless of which channel originates or fulfills the transaction. E-commerce sales are defined as sales that originate online, including those initiated online at the store level. On a trailing 12-month basis, our direct business increased to 21.2% of our total sales at the end of the second quarter of fiscal 2018 as compared to 20.5% at the end of second quarter of fiscal 2017.
Fiscal 2018 Outlook
We are reaffirming our earnings guidance, which we revised at the end of the first quarter of fiscal 2018 to reflect the savings that we expect from the corporate restructuring. We incurred a charge of
Our strategy for fiscal 2018 remains focused on customer acquisition, customer retention, and customer re-activation. Our marketing spend for the year is expected to be approximately
Our guidance for fiscal 2018, based on a 52-week year, is as follows:
- Sales of
$462.0 million to $472.0 million , with a total company comparable sales increase of approximately 1.0% to 3.0%. - Gross margin rate of approximately 44.5%.
- Net loss, on a GAAP basis, of
$(13.2) to $(18.2) million , or$(0.27) to $(0.37) per diluted share. - Adjusted net loss of
$(0.11) to $(0.18) per diluted share. Because we expect to continue providing a full valuation allowance against our deferred tax assets, we do not expect to recognize any income tax benefit in fiscal 2018. This non-GAAP net loss is before restructuring charges and CEO transition costs and assumes a tax rate benefit of 26%. * - EBITDA adjusted for restructuring charges and CEO transition costs (“Adjusted EBITDA”) of
$20.0 million to $25.0 million .* - Capital expenditures of approximately
$11.4 million ,$2.1 million of which will be for new and remodeled stores to the DXL format and$9.3 million for digital and infrastructure projects, partially offset by approximately$1.1 million in tenant allowances. We expect to fund our capital expenditures from our operating cash flow. - At the end of fiscal 2018, we expect cash flow from operating activities of
$20.5 million to $26.5 million (including tenant allowances), resulting in free cash flow after all capital expenditures of approximately$9.1 million to $15.1 million (inclusive of costs associated with restructuring and CEO transition)*.
* Reconciliations of these non-GAAP measures to their comparable GAAP measures are provided in the tables below.
Conference Call
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.
Non-GAAP Measures
In addition to financial measures prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), this press release contains non-GAAP financial measures, including EBITDA, adjusted EBITDA, adjusted net income (loss), adjusted net income (loss) per diluted share and free cash flow. The presentation of these non-GAAP measures is not in accordance with GAAP, and should not be considered superior to or as a substitute for net loss, net loss per diluted share or cash flows from operating activities or any other measure of performance derived in accordance with GAAP. In addition, not all companies calculate non-GAAP financial measures in the same manner and, accordingly, the non-GAAP measures presented in this release may not be comparable to similar measures used by other companies. The Company believes the inclusion of these non-GAAP measures helps investors gain a better understanding of the Company’s performance, especially when comparing such results to previous periods, and that they are useful as an additional means for investors to evaluate the Company's operating results, when reviewed in conjunction with the Company's GAAP financial statements. Reconciliations of these non-GAAP measures to their comparable GAAP measures are provided in the tables below.
The Company believes that EBITDA (calculated as earnings before interest, taxes, depreciation and amortization) and Adjusted EBITDA (calculated as EBITDA adjusted to exclude restructuring charges, CEO transition costs and any asset impairment charges) are useful to investors in evaluating its performance. With the significant capital investment over the past several years associated with the DXL stores and, therefore, increased levels of depreciation and interest, management uses EBITDA and Adjusted EBITDA as key metrics to measure profitability and economic productivity.
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 related to the restructuring charge, costs associated with the CEO transition and asset impairment charges, if applicable, because it provides comparability of results without these charges. Adjusted net 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.
About
Forward-Looking Statements
Certain statements and information contained in this press release constitute forward-looking statements under the federal securities laws, including statements regarding the Company’s expectations with respect to cash flows, gross profit margins, store counts, the impact of its corporate restructuring on profitability and related costs and savings, capital expenditures, sales, EBITDA, adjusted EBITDA and earnings for fiscal 2018. 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, including the corporate restructuring, 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.
DESTINATION XL GROUP, INC. | |||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||||||||
(In thousands, except per share data) | |||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||
For the three months ended | For the six months ended | ||||||||||||||||||||||
August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | ||||||||||||||||||||
Sales | $ | 122,206 | $ | 121,125 | $ | 235,537 | $ | 228,754 | |||||||||||||||
Cost of goods sold including occupancy | 65,681 | 65,308 | 128,324 | 124,249 | |||||||||||||||||||
Gross profit | 56,525 | 55,817 | 107,213 | 104,505 | |||||||||||||||||||
Expenses: | |||||||||||||||||||||||
Selling, general and administrative | 47,795 | 49,068 | 93,385 | 95,236 | |||||||||||||||||||
Corporate restructuring | 1,570 | — | 1,570 | — | |||||||||||||||||||
Impairment of assets | — | 1,718 | — | 1,718 | |||||||||||||||||||
Depreciation and amortization | 7,382 | 7,903 | 14,706 | 15,657 | |||||||||||||||||||
Total expenses | 56,747 | 58,689 | 109,661 | 112,611 | |||||||||||||||||||
Operating loss | (222 | ) | (2,872 | ) | (2,448 | ) | (8,106 | ) | |||||||||||||||
Interest expense, net | (958 | ) | (824 | ) | (1,844 | ) | (1,626 | ) | |||||||||||||||
Loss before provision for income taxes | (1,180 | ) | (3,696 | ) | (4,292 | ) | (9,732 | ) | |||||||||||||||
Provision for income taxes | 5 | 35 | 3 | 64 | |||||||||||||||||||
Net loss | $ | (1,185 | ) | $ | (3,731 | ) | $ | (4,295 | ) | $ | (9,796 | ) | |||||||||||
Net loss per share - basic and diluted | $ | (0.02 | ) | $ | (0.08 | ) | $ | (0.09 | ) | $ | (0.20 | ) | |||||||||||
Weighted-average number of common shares outstanding: | |||||||||||||||||||||||
Basic | 49,060 | 48,556 | 48,926 | 49,146 | |||||||||||||||||||
Diluted | 49,060 | 48,556 | 48,926 | 49,146 | |||||||||||||||||||
DESTINATION XL GROUP, INC. | ||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||||
August 4, 2018, February 3, 2018 and July 29, 2017 | ||||||||||
(In thousands) | ||||||||||
Unaudited | ||||||||||
August 4, | February 3, | July 29, | ||||||||
2018 | 2018 | 2017 | ||||||||
ASSETS | ||||||||||
Cash and cash equivalents | $ | 6,216 | $ | 5,362 | $ | 6,547 | ||||
Inventories | 102,912 | 103,332 | 112,334 | |||||||
Other current assets | 13,848 | 12,973 | 15,498 | |||||||
Property and equipment, net | 103,877 | 111,032 | 120,188 | |||||||
Intangible assets | 1,637 | 1,821 | 2,015 | |||||||
Other assets | 5,750 | 5,885 | 3,790 | |||||||
Total assets | $ | 234,240 | $ | 240,405 | $ | 260,372 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||
Accounts payable | $ | 32,426 | $ | 33,987 | $ | 31,767 | ||||
Accrued expenses and other liabilities | 62,476 | 65,263 | 71,103 | |||||||
Long-term debt | 14,729 | 12,061 | 14,873 | |||||||
Borrowings under credit facility | 46,430 | 47,385 | 53,447 | |||||||
Deferred gain on sale-leaseback | 10,990 | 11,723 | 12,456 | |||||||
Stockholders' equity | 67,189 | 69,986 | 76,726 | |||||||
Total liabilities and stockholders' equity | $ | 234,240 | $ | 240,405 | $ | 260,372 | ||||
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 | For the six months ended | ||||||||||||||||||||||||||||||
August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | ||||||||||||||||||||||||||||
$ | Per diluted share |
$ | Per diluted share |
$ | Per diluted share |
$ | Per diluted share |
||||||||||||||||||||||||
(in thousands, except per share data) | |||||||||||||||||||||||||||||||
Net loss (GAAP basis) | $ | (1,185 | ) | $ | (0.02 | ) | $ | (3,731 | ) | $ | (0.08 | ) | $ | (4,295 | ) | $ | (0.09 | ) | $ | (9,796 | ) | $ | (0.20 | ) | |||||||
Adjust: | |||||||||||||||||||||||||||||||
Corporate restructuring | 1,570 | - | 1,570 | - | |||||||||||||||||||||||||||
Impairment of assets | - | 1,718 | - | 1,718 | |||||||||||||||||||||||||||
Add back actual income tax provision | 5 | 35 | 3 | 64 | |||||||||||||||||||||||||||
Add income tax (provision) benefit, assuming a normal tax rate of 26% | (101 | ) | 514 | 708 | 2,084 | ||||||||||||||||||||||||||
Adjusted net income (loss) (non-GAAP basis) | $ | 289 | $ | 0.01 | $ | (1,464 | ) | $ | (0.03 | ) | $ | (2,014 | ) | $ | (0.04 | ) | $ | (5,930 | ) | $ | (0.12 | ) | |||||||||
Weighted average number of common shares outstanding on a: | |||||||||||||||||||||||||||||||
diluted basis for a net loss position | 49,060 | 48,556 | 48,926 | 49,146 | |||||||||||||||||||||||||||
diluted basis for a net income position | 49,549 | - | - | - | |||||||||||||||||||||||||||
GAAP TO NON-GAAP RECONCILIATION OF ADJUSTED EBITDA
For the three months ended | For the six months ended | ||||||||||||||
August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | ||||||||||||
(in millions) | |||||||||||||||
Net loss (GAAP basis) | $ | (1.2 | ) | $ | (3.7 | ) | $ | (4.3 | ) | $ | (9.8 | ) | |||
Add back: | |||||||||||||||
Corporate restructuring | 1.6 | - | 1.6 | - | |||||||||||
Impairment of assets | - | 1.7 | - | 1.7 | |||||||||||
Provision for income taxes | - | - | - | 0.1 | |||||||||||
Interest expense | 1.0 | 0.8 | 1.8 | 1.6 | |||||||||||
Depreciation and amortization | 7.4 | 7.9 | 14.7 | 15.7 | |||||||||||
Adjusted EBITDA (non-GAAP basis) | $ | 8.8 | $ | 6.7 | $ | 13.9 | $ | 9.3 |
GAAP TO NON-GAAP RECONCILIATION OF FREE CASH FLOW
For the six months ended | ||||||||
(in millions) | August 4, 2018 | July 29, 2017 | ||||||
Cash flow from operating activities (GAAP basis) | $ | 6.8 | $ | 14.3 | ||||
Capital expenditures, infrastructure projects | (6.1 | ) | (3.6 | ) | ||||
Capital expenditures for DXL stores | (1.3 | ) | (10.2 | ) | ||||
Free Cash Flow (non-GAAP basis) | $ | (0.6 | ) | $ | 0.6 | |||
2018 FORECAST GAAP TO NON-GAAP RECONCILIATIONS
Projected | ||||||
Fiscal 2018 | ||||||
(in millions, except per share data) | per diluted share | |||||
Net loss (GAAP basis) | $(13.2)-$(18.2) | |||||
Add back: | ||||||
Restructuring charge and CEO transition costs | 5.9 | |||||
Provision for income taxes | 0.1 | |||||
Interest expense | 3.1 | |||||
Depreciation and amortization | 29.1 | |||||
Adjusted EBITDA (non-GAAP basis) | $20.0-$25.0 | |||||
Net loss (GAAP basis) | $(13.2)-$(18.2) | $(0.27)-$(0.37) | ||||
Add back restructuring charge and CEO transition costs | 5.9 | $0.12 | ||||
Add back tax provision and record benefit assuming 26% | 2.0 - 3.2 | $0.04-$0.07 | ||||
Adjusted net loss (non-GAAP basis) | $(5.3) -$(9.1) | $(0.11)-$(0.18) | ||||
Weighted average common shares outstanding - diluted | 49.1 | |||||
Cash flow from operating activities (GAAP basis) | $20.5 -$26.5 | |||||
Capital expenditures, infrastructure projects | (9.3 | ) | ||||
Capital expenditures for DXL stores | (2.1 | ) | ||||
Free Cash Flow (non-GAAP basis) | $9.1-$15.1 |
Investor Contact:ICR, Inc. Tom Filandro , 646-277-1235 Tom.Filandro@icrinc.com
Source: Destination XL Group, Inc.