Destination XL Group, Inc. Reports Third Quarter Financial Results
Third Quarter Comparable Sales up 22.9% to Fiscal 2019;
Third Quarter Net Income
Raises Guidance for Fiscal 2021: Sales
Third Quarter Financial Highlights
- Total sales for the third quarter were
$121.5 million, up 42.6% from $85.2 millionin the third quarter of fiscal 2020 and up 14.0% from $106.6 millionin the third quarter of fiscal 2019. Compared to the third quarter of fiscal 2019, comparable sales increased 22.9%.
- Net income for the third quarter was
$13.7 million, or $0.20per diluted share, as compared to a net loss of $(7.0) million, or $(0.14)per diluted share, in the third quarter of fiscal 2020 and a net loss of $(7.2) million, or $(0.14)per diluted share, in the third quarter of fiscal 2019.
- Adjusted EBITDA for the third quarter was
$19.0 millioncompared to $(1.7) millionin the third quarter of fiscal 2020 and $1.7 millionin the third quarter of fiscal 2019.
- Cash Flow from operations for the first nine months of fiscal 2021 was
$64.2 millionas compared to the first nine months of fiscal 2020 of $(8.6) millionand the first nine months of fiscal 2019 of $(14.4) million. Free Cash Flow was $61.3 millionas compared to $(11.6) millionfor the first nine months of 2020 and $(25.4) millionfor the first nine months of fiscal 2019.
October 30, 2021, there was no debt outstanding and total cash of $6.9 million, compared to total debt, net of cash, of $61.5 millionat October 31, 2020and $77.5 millionat November 2, 2019. Availability under our credit facility was $74.0 millionat October 30, 2021as compared to $13.5 millionat October 31, 2020and $40.6 millionat November 2, 2019.
“I am very pleased to report that our business continued to grow across all customer channels and we believe we are actively growing our market share. Our primary focus is on customer acquisition, which was up 34% this quarter over fiscal 2019 and then generating repeat visits driving greater lifetime value. We continue to transform DXL’s brand positioning to further target the addressable market, acquire new customers and achieve a greater lifetime value across our entire customer file,” said
Kanter continued, “With our strong balance sheet, we believe we are well positioned to pursue an aggressive growth strategy. At the end of the third quarter, we were debt-free and had cash on hand of
“We are incredibly enthusiastic about the momentum DXL has already generated this year. Given our year-to-date performance, we are raising our full-year guidance, but we are also equally concerned about the ongoing and meaningful supply chain and labor issues that we are grappling with daily,” Kanter concluded.
Third Quarter Results
In addition to referring to fiscal 2020, the following review of our third quarter results for fiscal 2021 also includes comparisons to our third quarter results for fiscal 2019. Due to the COVID-19 pandemic and its impact on our results during the third quarter of fiscal 2020, we believe that comparisons to our results from the third quarter of fiscal 2019 are more informative.
Total sales for the third quarter of fiscal 2021 were
As compared to the third quarter of fiscal 2019, comparable sales for the third quarter were up 22.9% driven primarily by our direct business, which was up 56.5% and our stores, which were up 12.9%. The increase in our direct business was principally due to our DXL.com e-commerce site, which had a sales increase of 66.8% as compared to the third quarter of fiscal 2019.
The comparable sales growth in stores of 12.9% was driven by strong conversion rates and an increase in dollars per transaction. All regions reported a comparable sales increase for the third quarter, as compared to the third quarter of fiscal 2019, with the strongest improvements in the Southeast, Midwest, and South Central parts of the country, which exceeded the
Sales from our wholesale business were
For the third quarter of fiscal 2021, our gross margin rate, inclusive of occupancy costs, was 50.2% as compared to a gross margin rate of 36.5% for third quarter of fiscal 2020 and 41.1% for the third quarter of fiscal 2019.
As compared to fiscal 2019, our gross margin rate improved by 910 basis points, driven by a 430 basis point improvement in merchandise margins and a 480 basis point improvement in occupancy costs. On a dollar basis, our occupancy costs decreased by
Selling, General & Administrative
As a percentage of sales, SG&A (selling, general and administrative) expenses for the third quarter of fiscal 2021 were 34.5% as compared to 38.5% for the third quarter of fiscal 2020 and 39.5% for the third quarter of fiscal 2019.
On a dollar basis, 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 19.6% of sales in the third quarter of fiscal 2021 as compared to 22.0% of sales in the third quarter of fiscal 2019. Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 14.9% of sales in the third quarter of fiscal 2021 compared to 17.5% of sales in the third quarter of fiscal 2019.
Impairment of Assets
During the third quarter of fiscal 2021 and fiscal 2020, the Company recorded non-cash gains of
Interest expense for third quarter of fiscal 2021 was
Net Income (Loss)
For the third quarter of fiscal 2021, we recorded net income of
Adjusted EBITDA, a non-GAAP measure, for the third quarter of fiscal 2021 was
Cash flow from operations for the first nine months of fiscal 2021 was
Our capital expenditures for fiscal 2021 are expected to be limited to maintenance capital necessary to support our business strategy and we have no new or remodeled stores planned for the remainder of fiscal 2021.
|For the nine months ended|
|Cash flow from operating activities (GAAP basis)||$||64.2||$||(8.6||)||$||(14.4||)|
|Free Cash Flow (non-GAAP basis)||$||61.3||$||(11.6||)||$||(25.4||)|
Adjusted EBITDA 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
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 the remainder of fiscal 2021. We have 112 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 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 155 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 and an area of significant growth opportunity for us. We continue to see quarter over quarter growth in our direct business, even as customers return to our stores. For the third quarter of fiscal 2021, our direct sales were
Our sales performance in the third quarter of fiscal 2021 exceeded our expectations and, based on our financial results through the first nine months of fiscal 2021, we are raising our guidance for fiscal 2021 based on our third quarter performance. However, we remain cautious with respect to the fourth quarter and the impact that current supply chain issues may have on our ability to secure sufficient inventory levels. Additionally, the current sales trend could be affected by the increased spread of variants of the COVID-19 virus that may result in prolonged restrictions, store closures, supply chain challenges, increased commodity costs and reduced demand for apparel.
The high-end of our revised guidance is based on achieving a comparable sales increase for the year in the low double-digits as compared to fiscal 2019 with our direct business representing approximately 30% of our total retail sales. We expect our gross margin rate to decrease slightly in the fourth quarter of fiscal 2021 as a result of holiday promotions, resulting in an expected gross margin rate for the full year in the range of 48% to 49%.
Our revised guidance for fiscal 2021 is as follows:
- Sales of approximately
$500.0 millionto $510.0 million(an increase from our previously revised guidance of approximately $490.0 millionto $505.0 million).
- Adjusted EBITDA of approximately
$70.0 millionto $75.0 million(an increase from our previously revised guidance of approximately $65.0 millionto $72.0 million).
- Net income is expected to be
$0.72to $0.80per diluted share (an increase from our previously revised guidance of approximately $0.64to $0.76per diluted share).
- Free cash flow in excess of
$55.0 million(an increase from our previously revised guidance of in excess of $50.0 million).
The Company will hold a conference call to review its financial results on
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. Adjusted EBITDA margin is calculated as adjusted EBITDA divided by total sales.
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 underlying the guidance such as expected gross margin rate and comparable sales in 2021; our growth strategy and focus on customer acquisition; expected capital expenditures for fiscal 2021; expected increases in freight costs due to ongoing supply chain issues; expected increases in certain raw materials; and our expectations with respect to inventory management and availability and expected savings from our efforts to right size our lease structure. 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||For the nine months ended|
|Cost of goods sold including occupancy||60,529||54,099||62,776||188,178||153,057||195,012|
|Selling, general and administrative||41,962||32,820||42,108||120,856||90,727||134,197|
|Impairment of assets||(1,086||)||(1,135||)||—||(2,103||)||15,200||—|
|CEO transition costs||—||—||—||—||—||702|
|Exit costs associated with
|Depreciation and amortization||4,142||5,302||6,329||13,031||16,374||18,877|
|Operating income (loss)||15,939||(5,915||)||(6,369||)||51,608||(56,518||)||(7,726||)|
|Interest expense, net||(2,189||)||(1,080||)||(870||)||(4,256||)||(2,873||)||(2,585||)|
|Income (loss) before provision (benefit) for income taxes||13,750||(6,995||)||(7,239||)||47,352||(59,391||)||(10,311||)|
|Provision (benefit) for income taxes||94||27||(49||)||548||71||(78||)|
|Net income (loss)||$||13,656||$||(7,022||)||$||(7,190||)||$||46,804||$||(59,462||)||$||(10,233||)|
|Net income (loss) per share:|
|Weighted-average number of common shares outstanding:|
|CONDENSED CONSOLIDATED BALANCE SHEETS|
|Cash and cash equivalents||$||6,937||$||18,997||$||21,417|
|Other current assets||8,530||10,105||10,757|
|Property and equipment, net||45,769||56,552||60,617|
|Operating lease right-of-use assets||118,684||134,321||147,540|
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)|
|Accrued expenses and other liabilities||37,021||29,934||27,886|
|Borrowings under credit facility||—||59,521||68,019|
|Stockholders' equity (deficit)||47,733||(4,077||)||1,057|
|Total liabilities and stockholders' equity||$||263,921||$||306,755||$||336,919|
CERTAIN COLUMNS IN THE FOLLOWING TABLES MAY NOT FOOT DUE TO ROUNDING
GAAP TO NON-GAAP RECONCILIATION OF ADJUSTED EBITDA
|For the three months ended||For the nine months ended||Projected|
|Net income (loss) (GAAP basis)||$||13.7||$||(7.0||)||$||(7.2||)||$||46.8||$||(59.5||)||$||(10.2||)|
|Impairment of assets||(1.1||)||(1.1||)||-||(2.1||)||15.2||-||(2.1||)|
|CEO transition costs||-||-||-||-||-||0.7||-|
|Exit costs associated with
|Provision (benefit) for income taxes||0.1||-||-||0.5||0.1||(0.1||)||0.5-0.8|
|Depreciation and amortization||4.1||5.3||6.3||13.0||16.4||18.9||17.1-17.3|
|Adjusted EBITDA (non-GAAP basis)||$||19.0||$||(1.7||)||$||1.7||$||62.5||$||(24.9||)||$||13.6|
GAAP TO NON-GAAP RECONCILIATION OF FREE CASH FLOW
|For the nine months ended||Projected|
|(in millions)||Fiscal 2021|
|Cash flow from operating activities (GAAP basis)||$||64.2||$||(8.6||)||$||(14.4||)||$ > 59.3|
|Free Cash Flow (non-GAAP basis)||$||61.3||$||(11.6||)||$||(25.4||)||$ > 55.0|
Source: Destination XL Group, Inc.