SEC Filing | Destination XL Group, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the Quarterly Period Ended August 1, 2015

Commission File Number 01-34219

DESTINATION XL GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware		04-2623104
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

555 Turnpike Street, Canton, MA		02021
(Address of principal executive offices)		(Zip Code)

(781) 828-9300

(Registrant’s telephone

number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	x

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares of the registrant’s common stock outstanding as of August 20, 2015 was 50,779,298.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

DESTINATION XL GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

	August 1, 2015			January 31, 2015
	(Fiscal 2015)			(Fiscal 2014)

ASSETS
Current assets:
Cash and cash equivalents	$	5,798		$	4,586
Accounts receivable		4,815			3,619
Inventories		123,568			115,220
Prepaid expenses and other current assets		10,073			8,913
Total current assets		144,254			132,338

Property and equipment, net of accumulated depreciation and amortization		124,034			120,328

Other assets:
Intangible assets		2,966			3,308
Other assets		3,736			3,907
Total assets	$	274,990		$	259,881

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	7,435		$	7,335
Current portion of deferred gain on sale-leaseback		1,465			1,465
Accounts payable		36,220			29,979
Accrued expenses and other current liabilities		29,249			31,972
Borrowings under credit facility		34,090			18,817
Total current liabilities		108,459			89,568

Long-term liabilities:
Long-term debt, net of current portion		22,397			26,171
Deferred rent and lease incentives		30,265			28,850
Deferred gain on sale-leaseback, net of current portion		13,922			14,654
Deferred tax liability		144			91
Other long-term liabilities		6,977			8,157
Total long-term liabilities		73,705			77,923

Commitments and contingencies

Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued		—			—
Common stock, $0.01 par value, 100,000,000 shares authorized, 61,625,439 and 61,560,544 shares issued at August 1, 2015 and January 31, 2015, respectively		616			616
Additional paid-in capital		301,306			299,892
Treasury stock at cost, 10,877,439 shares at August 1, 2015 and January 31, 2015		(87,977	)		(87,977	)
Accumulated deficit		(113,456	)		(111,903	)
Accumulated other comprehensive loss		(7,663	)		(8,238	)
Total stockholders' equity		92,826			92,390
Total liabilities and stockholders' equity	$	274,990		$	259,881

The accompanying notes are an integral part of the consolidated financial 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 1, 2015			August 2, 2014			August 1, 2015			August 2, 2014
	(Fiscal 2015)			(Fiscal 2014)			(Fiscal 2015)			(Fiscal 2014)

Sales	$	114,147		$	104,162		$	218,552		$	200,821
Cost of goods sold including occupancy costs		60,264			55,925			116,430			108,646
Gross profit		53,883			48,237			102,122			92,175

Expenses:
Selling, general and administrative		47,121			45,101			88,590			86,548
Depreciation and amortization		6,928			5,698			13,450			11,128
Total expenses		54,049			50,799			102,040			97,676

Operating income (loss)		(166	)		(2,562	)		82			(5,501	)

Interest expense, net		(746	)		(451	)		(1,507	)		(862	)

Loss from continuing operations before provision for income taxes		(912	)		(3,013	)		(1,425	)		(6,363	)
Provision for income taxes		67			63			128			110

Loss from continuing operations		(979	)		(3,076	)		(1,553	)		(6,473	)
Loss from discontinued operations, net of taxes		—			(956	)		—			(1,095	)

Net loss	$	(979	)	$	(4,032	)	$	(1,553	)	$	(7,568	)

Net loss per share - basic and diluted:
Loss from continuing operations	$	(0.02	)	$	(0.06	)	$	(0.03	)	$	(0.13	)
Loss from discontinued operations	$	-		$	(0.02	)	$	-		$	(0.02	)
Net loss per share - basic and diluted	$	(0.02	)	$	(0.08	)	$	(0.03	)	$	(0.16	)

Weighted-average number of common shares outstanding:
Basic		49,081			48,743			49,050			48,699
Diluted		49,081			48,743			49,050			48,699

The accompanying notes are an integral part of the consolidated financial statements.

DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

	For the three months ended						For the six months ended
	August 1, 2015			August 2, 2014			August 1, 2015			August 2, 2014
	(Fiscal 2015)			(Fiscal 2014)			(Fiscal 2015)			(Fiscal 2014)
Net loss	$	(979	)	$	(4,032	)	$	(1,553	)	$	(7,568	)

Other comprehensive income (loss) before taxes:
Foreign currency translation		39			15			62			107
Pension plan		277			138			513			277
Other comprehensive income (loss) before taxes		316			153			575			384
Tax (provision) benefit related to items of other comprehensive income (loss)		—			—			—			—
Other comprehensive income (loss), net of tax		316			153			575			384
Comprehensive loss	$	(663	)	$	(3,879	)	$	(978	)	$	(7,184	)

The accompanying notes are an integral part of the consolidated financial statements.

DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

																Accumulated
					Additional											Other
	Common Stock				Paid-in		Treasury Stock						Accumulated			Comprehensive
	Shares		Amounts		Capital		Shares			Amounts			Deficit			Income (Loss)			Total
Balance at January 31, 2015		61,561	$	616	$	299,892		(10,877	)	$	(87,977	)	$	(111,903	)	$	(8,238	)	$	92,390

Stock compensation expense						1,088														1,088
Exercises under option program		12		—		61														61
Board of Directors compensation		42		—		265														265
Issuance of restricted stock, net of cancellations		10		—		—														—
Accumulated other comprehensive income (loss):
Unrecognized gain associated with pension plan																	513			513
Foreign currency																	62			62
Net loss														(1,553	)					(1,553	)
Balance at August 1, 2015		61,625	$	616	$	301,306		(10,877	)	$	(87,977	)	$	(113,456	)	$	(7,663	)	$	92,826

The accompanying notes are an integral part of the consolidated financial statements.

DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	For the six months ended
	August 1, 2015			August 2, 2014
	(Fiscal 2015)			(Fiscal 2014)
Cash flows from operating activities:
Net loss	$	(1,553	)	$	(7,568	)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Amortization of deferred gain on sale-leaseback		(732	)		(733	)
Amortization of deferred debt issuance costs		139			78
Depreciation and amortization		13,450			11,128
Deferred taxes, net of valuation allowance		53			38
Stock compensation expense		1,088			1,463
Issuance of common stock to Board of Directors		265			106

Changes in operating assets and liabilities:
Accounts receivable		(1,196	)		1,919
Inventories		(8,348	)		(10,472	)
Prepaid expenses and other current assets		(1,160	)		(953	)
Other assets		171			229
Accounts payable		6,241			976
Deferred rent and lease incentives		1,415			2,623
Accrued expenses and other liabilities		(3,163	)		(1,506	)
Net cash provided by (used for) operating activities		6,670			(2,672	)

Cash flows from investing activities:
Additions to property and equipment, net		(16,979	)		(18,930	)
Net cash used for investing activities		(16,979	)		(18,930	)

Cash flows from financing activities:
Proceeds from the exercise of stock options		61			81
Proceeds from the issuance of long-term debt		—			8,912
Principal payments on long-term debt		(3,737	)		(3,007	)
Costs associated with debt issuances		(15	)		(27	)
Net borrowings under credit facility		15,212			16,666
Net cash provided by financing activities		11,521			22,625
Net increase in cash and cash equivalents		1,212			1,023
Cash and cash equivalents:
Beginning of period		4,586			4,544
End of period	$	5,798		$	5,567

The accompanying notes are an integral part of the consolidated financial statements.

DESTINATION XL GROUP, INC.

Notes to Consolidated Financial Statements

1. Basis of Presentation

In the opinion of management of Destination XL Group, Inc., a Delaware corporation (formerly known as Casual Male Retail Group, Inc. and, collectively with its subsidiaries, referred to as the “Company”), the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the interim financial statements. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with the notes to the Company’s audited consolidated financial statements for the fiscal year ended January 31, 2015 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 25, 2015.

The information set forth in these statements may be subject to normal year-end adjustments. The information reflects all adjustments that, in the opinion of management, are necessary to present fairly the Company’s results of operations, financial position and cash flows for the periods indicated. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s business historically has been seasonal in nature, and the results of the interim periods presented are not necessarily indicative of the results to be expected for the full year.

The Company’s fiscal year is a 52- or 53- week period ending on the Saturday closest to January 31. Fiscal 2015 and fiscal 2014 are 52-week periods ending January 30, 2016 and January 31, 2015, respectively.

Segment Information

The Company reports its operations as one reportable segment, Big & Tall Men’s Apparel, which consists of two principal operating segments: its retail business and its direct business. The Company considers its operating segments to be similar in terms of economic characteristics, production processes and operations, and have therefore aggregated them into a single reporting segment, consistent with its omni-channel business approach. The direct operating segment includes the operating results and assets for LivingXL^® and ShoesXL^®.

Change in Accounting Principle

The Company historically presented deferred debt issuance costs, or fees directly related to issuing debt, as assets on the consolidated balance sheets. In the first quarter of fiscal 2015, the Company elected early adoption of ASU 2015−03, “Interest − Imputation of Interest (Subtopic 835−30), Simplifying the Presentation of Debt Issuance Costs” (ASU 2015-03). The guidance simplifies the presentation of debt issuance costs by requiring debt issuance costs to be presented as a deduction from the corresponding liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs is not affected. Therefore, these costs will continue to be amortized as interest expense over the term of the corresponding debt issuance. The Company applied the new guidance retrospectively to all prior periods presented in the financial statements.

The reclassification did not impact net income (loss) previously reported or any prior amounts reported on the Consolidated Statements of Operations. The following table presents the effect of the retrospective application of this change in accounting

principle on the Company’s Consolidated Balance Sheets as of January 31, 2015.

	As Reported		Effect of Change in			After Change in
Consolidated Balance Sheets (in thousands)	January 31, 2015		Accounting Principle			Accounting Principle
ASSETS:
Current assets:
Prepaid expenses and other current assets	$	9,190	$	(277	)	$	8,913
Total current assets		132,615		(277	)		132,338
Noncurrent assets:
Other assets		4,849		(942	)		3,907
Total assets		261,100		(1,219	)		259,881

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	7,489	$	(154	)	$	7,335
Borrowings under credit facility		19,402		(585	)		18,817
Total current liabilities		90,307		(739	)		89,568
Long-term liabilities:
Long-term debt, net of current portion		26,651		(480	)		26,171
Total long-term liabilities		78,403		(480	)		77,923
Total liabilities and stockholders' equity		261,100		(1,219	)		259,881

Reclassification

As a result of the Company adopting ASU 2015-03, for the first six months of fiscal 2014, the Company has reclassified $78,000 from “Change in Other Assets” to “Amortization of Deferred Debt Issuance Costs” in the Consolidated Statement of Cash Flows.

Intangibles

At August 1, 2015, the “Casual Male” trademark had a carrying value of $1.2 million and is considered a definite-lived asset. The Company is amortizing the remaining carrying value on an accelerated basis, consistent with projected cash flows through fiscal 2018, its estimated remaining useful life.

The Company’s “Rochester” trademark is considered an indefinite-lived intangible asset and has a carrying value of $1.5 million. During the first six months ended August 1, 2015, no event or circumstance occurred which would cause a reduction in the fair value of the Company’s reporting units, requiring interim testing of the Company’s “Rochester” trademark.

Fair Value of Financial Instruments

ASC Topic 825, Financial Instruments, requires disclosure of the fair value of certain financial instruments. ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements.

The valuation techniques utilized are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities.

The Company utilizes observable market inputs (quoted market prices) when measuring fair value whenever possible.

The fair value of long-term debt is classified within Level 2 of the valuation hierarchy. At August 1, 2015, the fair value approximates the carrying amount based upon terms available to the Company for borrowings with similar arrangements and remaining maturities.

The fair value of indefinite-lived assets, which consists of the Company’s “Rochester” trademark, is measured on a non-recurring basis in connection with the Company’s annual impairment test. The fair value of the trademark is determined using a projected discounted cash flow analysis based on unobservable inputs and are classified within Level 3 of the valuation hierarchy. See Intangibles above.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and short-term borrowings approximate fair value because of the short maturity of these instruments.

Accumulated Other Comprehensive Income (Loss) - (“AOCI”)

Other comprehensive income (loss) includes amounts related to foreign currency and pension plans and is reported in the Consolidated Statements of Comprehensive Income (Loss). Other comprehensive income and reclassifications from AOCI for the three and six months ended August 1, 2015 and August 2, 2014 are as follows:

	August 1, 2015									August 2, 2014
For the three months ended:	(in thousands)
	Pension Plans			Foreign Currency			Total			Pension Plans			Foreign Currency		Total
Balance at beginning of the quarter	$	(7,559	)	$	(420	)	$	(7,979	)	$	(4,408	)	$	79	$	(4,329	)

Other comprehensive income before reclassifications, net of taxes		93			39			132			82			15		97

Amounts reclassified from accumulated other comprehensive income, net of taxes ⁽¹⁾		184			—			184			56			—		56

Other comprehensive income for the period		277			39			316			138			15		153

Balance at end of quarter	$	(7,282	)	$	(381	)	$	(7,663	)	$	(4,270	)	$	94	$	(4,176	)

	August 1, 2015									August 2, 2014
For the six months ended:	(in thousands)
	Pension Plans			Foreign Currency			Total			Pension Plans			Foreign Currency			Total
Balance at beginning of fiscal year	$	(7,795	)	$	(443	)	$	(8,238	)	$	(4,547	)	$	(13	)	$	(4,560	)