dxlg-10k_20200201.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended February 1, 2020

(Fiscal 2019)

 

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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbols(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

 DXLG

The NASDAQ Stock Market LLC

 

 

 

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes      No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes      No  

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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes      No  

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

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act.

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

As of August 2, 2019, the aggregate market value of the Common Stock held by non-affiliates of the registrant was approximately $53.6 million, based on the last reported sale price on that date. Shares of Common Stock held by each executive officer and director and by certain persons who own 10% or more of the outstanding Common Stock have been excluded on the basis that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily determinative for other purposes.

The registrant had 50,635,062 shares of Common Stock, $0.01 par value, outstanding as of March 15, 2020.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2020 Annual Meeting of Stockholders are incorporated by reference into Part III.

 

 


 

DESTINATION XL GROUP, INC.

 

 

Index to Annual Report on Form 10-K

Year Ended February 1, 2020

 

 

 

 

 

Page

 

 

 

PART I

 

 

 

Item 1.

 

Business

 

3

 

Item 1A.

 

Risk Factors

 

12

 

Item 1B.

 

Unresolved Staff Comments

 

19

 

Item 2.

 

Properties

 

19

 

Item 3.

 

Legal Proceedings

 

21

 

Item 4.

 

Mine Safety Disclosures

 

21

 

 

 

PART II

 

 

 

Item 5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

21

 

Item 6.

 

Selected Financial Data

 

23

 

Item 7.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

25

 

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

 

37

 

Item 8.

 

Financial Statements and Supplementary Data

 

38

 

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

67

 

Item 9A.

 

Controls and Procedures

 

67

 

Item 9B.

 

Other Information

 

69

 

 

 

PART III

 

 

 

Item 10.

 

Directors, Executive Officers and Corporate Governance

 

70

 

Item 11.

 

Executive Compensation

 

70

 

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

70

 

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

 

70

 

Item 14.

 

Principal Accounting Fees and Services

 

70

 

 

 

PART IV

 

 

 

Item 15.

 

Exhibits and Financial Statement Schedules

 

71

 

Item 16.

 

Form 10-K Summary

 

71

 

 

 

Signatures

 

76

 

 

 

 

2


 

PART I.

Certain statements contained in this Annual Report on Form 10-K (this “Annual Report”) constitute “forward-looking statements,” including forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “will,” “estimate,” “intend,” “plan,” “continue,” “believe,” “expect” or “anticipate” or the negatives thereof, variations thereon or similar terminology. The forward-looking statements contained in this Annual Report are generally located under the headings “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but may be found in other locations as well, and include statements regarding the impact of the coronavirus outbreak on the Company’s business and results in fiscal 2020 and actions being taken by the Company to mitigate the impact, including to reduce operating expenses and capital expenditures, cancel inventory receipts, and to preserve liquidity. These forward-looking statements generally relate to plans and objectives for future operations and are based upon management’s reasonable estimates of future results or trends. The forward-looking statements in this Annual Report should not be regarded as a representation by us or any other person that the objectives or plans of the Company will be achieved. Numerous factors could cause our actual results to differ materially from such forward-looking statements, including, without limitation, risks relating to the execution of our corporate strategy and ability to grow our market share, and those risks and uncertainties set forth below under Item 1A, Risk Factors. Readers are encouraged to review these risks and uncertainties carefully.

These forward-looking statements speak only as of the date of the document in which they are made. We disclaim any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in its expectations or any change in events, conditions or circumstances in which the forward-looking statement is based.

Coronavirus

With the recent outbreak of a novel strain of coronavirus (“COVID-19”) in the U.S. and its potential impact on the global economy, the Company has included discussion under Item 1A, Risk Factors, and under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, to disclose the various actions that the Company is taking with respect to COVID-19 and the associated risks that COVID-19 may have on our financial results for fiscal 2020.  As discussed under Item 1A, Risk Factors, while the Company’s direct business remains operational, on March 17, 2020, the Company temporarily closed its retail stores through at least March 28, 2020.

Item 1. Business

Destination XL Group, Inc., together with its subsidiaries (the “Company”), is the largest specialty retailer of big & tall men’s clothing and shoes with retail locations in the United States and Toronto, Canada. We operate under the trade names of Destination XL®, DXL®, DXL Men’s Apparel, DXL outlets, Casual Male XL® and Casual Male XL outlets. We currently operate 228 DXL retail stores, 17 DXL outlet stores, 50 Casual Male XL retail stores, 28 Casual Male XL outlet stores and a direct business at www.dxl.com. In fiscal 2018, we launched a wholesale business unit focused on product development and distribution relationships with key retailers offering both private label and co-branded men’s big & tall apparel lines.  Unless the context indicates otherwise, all references to “we,” “our,” “ours,” “us” and “the Company” refer to Destination XL Group, Inc. and our consolidated subsidiaries. We refer to our fiscal years ended February 1, 2020, February 2, 2019 and February 3, 2018 as “fiscal 2019”, “fiscal 2018” and “fiscal 2017,” respectively. Fiscal 2019 and fiscal 2018 were 52-week years whereas fiscal 2017 was a 53-week year.

OUR INDUSTRY

We define the big & tall men’s clothing market as starting at a waist size of 42” and greater, as well as tops sized 1XL and greater. Growth in this segment historically has been driven by rapidly changing market demographics. We believe that we can increase our market share by catering to the broader target market, attracting customers from various income, age and lifestyle segments and offering the widest selection of sizes and styles that fit well. An opportunity also exists for market share growth from the lower-size range of our market, that is, men with a 38” to 46” waist size, which we define as our “end-of-rack” customers. These sizes are usually at the high end of the size range for most men’s apparel retailers and, as a result, the selection is usually limited at such retailers.  

HISTORY

Our Company was incorporated in the State of Delaware in 1976 under the name Designs, Inc. Until fiscal 1995, we operated exclusively in Levi Strauss & Co. branded apparel mall and outlet stores. In May 2002, we acquired the Casual Male business from Casual Male Corp. at a bankruptcy court-ordered auction. At the time of the acquisition, Casual Male was the largest specialty retailer of men’s clothing in the big & tall market in the United States. As a result of the acquisition, on August 8, 2002, we changed our name to “Casual Male Retail Group, Inc.”

 

3


 

Through fiscal 2010, we primarily operated Casual Male XL retail stores, Casual Male XL outlet stores and Rochester Clothing stores, along with the associated websites and catalogs. We catered to all customers through these three store formats, from our value-oriented customer (Casual Male XL outlets) to our luxury-oriented customer (Rochester Clothing stores). During that year, we tested a new store concept, Destination XL (“DXL”). The DXL store concept merged all of our existing brands under one roof, offering our customers an extensive assortment of products and an increased presence of name brands, without having to shop multiple stores. In addition to offering our customers a wide assortment, we also wanted to provide them with a unique shopping experience. We are focused on providing outstanding customer service through our DXL stores, with everything from larger fitting rooms to professional, trained associates providing both personal attention and on-site tailoring in many locations. With the initial success of this store format, we then made a similar change to our e-commerce business in fiscal 2011 when we launched our DestinationXL.com website (now dxl.com).

OUR BUSINESS

We operate as an omni-channel retailer of big & tall men’s clothing and shoes.  Through our multiple brands, which include both branded apparel and private-label, we provide a premium, personalized shopping experience, whether in-store or online, with a broad range of merchandise at varying price points, catering from the value-oriented customer to the higher-end customer. Our objective is to appeal to all of our customers by providing a good, better, best array of product assortments in all primary lifestyles with multiple and convenient ways to shop.

Our DXL retail stores and e-commerce site, dxl.com, cater to all income demographics and offer our customers merchandise to fit a variety of lifestyles from casual to business, young to mature, in all price ranges and in all large sizes from XL and up. In addition, a complete offering of shoes in sizes 10W to 18W is available at dxl.com.  Our Casual Male XL retail stores primarily carry moderate-priced branded and private-label casual sportswear and dresswear. We also operate Casual Male XL outlets and DXL outlets for our value-oriented customer. Through online marketplaces, we are able to extend our reach, by providing a select offering of our merchandise to new customers who may not be current DXL customers.  In addition to our retail channels, we also launched a wholesale channel in fiscal 2018.  In 2019, we closed our five remaining Rochester Clothing stores.

What is unique about our business is our ability to manage the number of sizes offered to our customers to ensure proper fit and optimizing our in-stock position throughout each season. Our best-selling pant has 47 size combinations as compared to an average retailer who may only have 15 different size combinations.  We maintain a consolidated inventory across all channels that enables us to manage our in-stock position of all sizes effectively, ultimately improving customer service. Moreover, our planning and allocation methodologies, with respect to store assortment planning, help to optimize each location’s market potential without excessive inventory levels.

BUSINESS STRATEGY

In fiscal 2020, we will continue to focus on the objectives we identified in fiscal 2019: increasing customer acquisition, customer retention and customer re-activation leading to top-line sales growth, while improving profitability, and increasing market share.  Our business strategy includes several key initiatives that we believe will drive this growth, while at the same time continually looking at opportunities where we can further improve the efficiency and productivity of our business.  

Harvey Kanter joined the Company as its new President and Chief Executive Officer on April 1, 2019.  Since he came aboard, we have reviewed and redefined our mission, vision and strategic plan.  We have made capital investments in our customer relationship capabilities, our data infrastructure and our data analytics capabilities. We believe these investments are required as we move forward in the digitally-driven retail environment in which we operate today. We also realigned our management team, as we work to execute our strategic plan and work toward building a digitally-centric organization.  We have been working on new customer segmentations over the past year in an attempt to better understand the different “clusters” of customers that we have.  As we head into fiscal 2020, our goal now is to better leverage our data and consumer insights to influence the way we market and merchandise to our customers.  

Some of our most important initiatives for fiscal 2020 include the following:

 

Marketing initiatives. Our marketing approach will be data-driven and therefore more targeted and personalized to our customer segments.  We aim to use our marketing dollars more efficiently, specifically targeting our customer segments with a combination of digital advertising, direct mail, loyalty program and, to a lesser extent, television and radio.  We are taking a fresh look at each of our marketing programs, establishing disciplined “return on ad spend” requirements throughout, particularly with our digital advertising and promotional campaigns.

 

Merchandising initiatives.  Our assortments consist of over 100 national brands and 9 private-label brands, including The North Face and Vineyard Vines, which were added to our list of national brands in fiscal 2018.  During fiscal 2019, we expanded the number of stores that carry our top national brands and also expanded the in-store choice counts for many of

 

4


 

 

the brands.  As a result of the macro-trend we continue to see with “the casualization of America”, we will be increasing our selection of casual sportswear, with our in-store presentation of tailored clothing being reduced and integrated as part of our sportswear collections.  While the old idea of tailored clothing may be softening, we will be showing our customers how they can modernize their look, with a combination of tailored and sportswear pieces. In addition to the many well-known brand names that we carry, we will also be featuring many of private-label brands, offering great quality at great value.

 

Customer in-store experience.  Our stores represent our largest revenue channel and we are very proud of our in-store customer experience.  Our stores tell our brand story and highlight for our customers the depth of products and brands that we have to offer.  However, store traffic has been challenging across much of the retail industry as more consumers convert to online shopping.  We will focus on revitalizing store traffic through our targeted marketing and merchandise initiatives, while recognizing that our most valuable customers are those who shop both in-store and online.

 

Rebranding of Casual Male XL stores to the DXL store format. Through the end of fiscal 2019, we have rebranded a total of 17 Casual Male retail and outlet stores to 14 DXL retail stores and 3 DXL outlets.  The sales performance of these stores, post rebranding, have been encouraging and, with the limited capital investment required to rebrand the stores, our return on investment has been strong.  We believe this approach will enable us to convert the majority of the remaining Casual Male XL stores to the DXL format, in cases where relocating to a full DXL store is not feasible.  By converting our Casual Male XL stores, we can leverage the marketing investment in DXL.

 

Direct Channel.  Our direct business performed very well in fiscal 2019 and we believe that there is significant opportunity for further growth in this channel, which includes not only our website but also our third-party marketplaces. Our marketing initiatives will play a key role in helping to drive this growth, with improvements in digital spending including paid search, search engine optimization and affiliate marketing.

 

Wholesale Channel. We are excited about the growth in our wholesale business in fiscal 2019.  We are continuing to take a conservative approach with the development of this business to ensure that we have the necessary infrastructure and processes in place to support growth.  Based on customer reviews, product from our wholesale business was very well-received and we look to expand upon this product offering in fiscal 2020.  Over the course of fiscal 2019, we increased the gross margin rates by improving our replenishment program and reducing landing costs.  We believe this business is a strong complement to our retail channel and affords us the opportunity to access new customers who do not currently shop at DXL.  

MERCHANDISE

We offer our customers a broad assortment of apparel that is appropriate to our diverse customer base. Regardless of our customers’ age, socioeconomic status, or lifestyle preference, we are able to assemble a wardrobe to fit their apparel needs. We offer such assortments in both private-label product and a wide array of brand name labels. With over 5,000 styles available, we carry tops in sizes up to 8XL and 8XLT, bottoms with waist sizes 38” to 70”, and shoes in sizes 10W to 18W. Big and tall is all we do. We do not just scale up product from a regular fit like most other retailers; our fit is built from unique specifications for every size and style.

Our stores are merchandised to showcase entire outfits by lifestyle, including traditional, active, denim, young men’s, dress wear and contemporary. This format allows us to merchandise key items and seasonal goods in prominent displays and makes coordinating outfits easier for the customer while encouraging multi-item purchases. This lifestyle layout also allows us to manage store space and product assortment effectively in each market to target local demographics. The key item strategy is also fully integrated by lifestyle, allowing us to focus on merchandise presentation and offer our customers a compelling value proposition.

Merchandise assortments in our DXL stores are organized not only by lifestyle, but within each lifestyle, the assortments are shown in a “good,” “better” and “best” visual presentation.  With the “best” merchandise assortments featured most prominently in the DXL store, our customers are able to visualize current fashion trends and select their wardrobes within their desired price points in a convenient manner. Our website and select DXL stores also offer certain “luxury” brands.

We carry over 100 well-known national brands (“branded apparel”) as well as a number of our own private-label lines within our “good,” “better” and “best” price points.  The penetration of branded apparel in a specific DXL stores can range from 15% to 80%, depending on several factors, but on average, approximately half of the assortment is branded merchandise.  

Higher-End Fashion Apparel -“Best” Merchandise

Within this higher-end price range, we carry a broad selection of quality apparel from well-known branded manufacturers, such as, Brooks Brothers®, The North Face®, Remy, Psycho Bunny®, Coppley, Jack Victor®, Lucky, Michael Kors®, JOE’S® Jeans, Robert Graham®, and Robert Barakett ®. We also carry a private-label line Rochester® that targets traditional luxury styles.

Our website and certain DXL stores also carry a limited selection of Ted Baker®, Santorelli® and 7 for all Mankind®.

 

5


 

Moderate-Priced Apparel -“Better” Merchandise

We offer our customer an extensive selection of quality sportswear and dress clothing at moderate prices carrying well-known brands such as: Buffalo Jeans®, Rainforest, O’Neill®, Retro Brand, Cutter & Buck®, Levis®, Adidas® Golf, Columbia, Berne®, Carhartt®, Callaway®, Jockey®, Lacoste®, Majestic, Polo Ralph Lauren®, Tommy Bahama®, Vineyard Vines® and Tallia®.

In addition, we carry two moderate-priced private-label lines:

 

Twenty Eight Degrees™ is targeted as a contemporary/modern line offering sportswear and loungewear.

 

Society of One is a jeanswear brand catering to the needs of the fashion denim customer.

Value-Priced Apparel -“Good” Merchandise

For our value-oriented customers, we carry Geoffrey Beene®, Cubavera, Nautica® and Nautica Jeans®, Dockers, Lee, Wrangler, Reebok and PX Clothing. In addition, we carry several value-priced private label lines:

 

Harbor Bay® was our first proprietary brand and it is a traditional line that continues to represent a significant portion of our business, specifically in terms of our core basic merchandise.

 

Gold Series™ is our core performance offering of tailored-related separates, blazers, dress slacks, dress shirts and neckwear that blends comfort features such as stretch, stain resistance and wrinkle-free fabrics with basic wardrobe essentials.

 

Synrgy™ targets the customer looking for a contemporary/modern look.

 

Oak Hill® is a premier line catering to those customers looking for slightly more style and quality than our Harbor Bay line but still in a traditional lifestyle.

 

True Nation® is a denim-inspired line consisting of vintage-screen t-shirts and wovens and is geared towards our younger customers.

 

Island Passport® is an island-inspired line of camp shirts, printed woven shirts and relaxed island-inspired pants.

Shoes

Our DXL website offers a full assortment of footwear, with a broad selection from casual to formal, in varying price points. We currently have a selection of more than 600 styles of shoes, ranging in sizes from 10W to 18W, including designer brands such as Cole Haan®, Allen Edmonds®, Timberland®, Calvin Klein® and Lacoste®.

STORE CHANNEL

DXL Men’s Apparel Stores

At February 1, 2020, we operated 228 DXL retail stores.  Our DXL store concept brings all of our brands together in one format. Within this format, we cater to our diverse customer base, with merchandise representing all price points, from our higher-end brands to value-oriented brands, and all lifestyles, from business to denim.  The size of our DXL stores averages 7,600 square feet, but since fiscal 2016 we have opened smaller (5,000-6,500 square feet) DXL stores.  Because of the smaller size of these stores, they carry a smaller product offering than our other DXL stores but are representative of the “good, better, best” merchandise variety. We seek to locate our DXL stores in places that are highly visible, preferably adjacent to regional malls or other high-traffic shopping areas.

Our DXL stores provide our customers a contemporary store with up to three times the product offering of a Casual Male XL store. The merchandise in our DXL stores is organized by lifestyle: active, traditional, modern and denim with a representation of all of our brands and price points, utilizing a “good, better, best” pricing structure. Depending on the customers in each respective market, we can adjust the appropriate mix of merchandise, with varying selections from each of our price points, to cater to each demographic market. Our stores also carry dress wear, including tailored and, in some locations, “made-to-measure” custom clothing, as well as a selection of shoes in extended sizes and a broad assortment of accessories such as belts, ties, and socks. In fiscal 2019, in addition to expanding the number of stores that carry an extended offering of branded apparel, we also began expanding the in-store presentation of certain branded apparel lines in selected stores.  

During fiscal 2019, we rebranded 12 Casual Male XL retail stores and 2 Casual Male XL outlet stores to the DXL store concept.  We expect, based on the strong returns in these stores, that we will rebrand, where possible, many of the remaining Casual Male XL retail and outlet stores. In many markets, rebranding a Casual Male XL store to a DXL store provides a viable alternative to the more costly endeavor of relocating a Casual Male XL store to new DXL real estate. In addition, the converted stores benefit from DXL advertising.

 

6


 

Casual Male XL Retail Stores

At February 1, 2020, we operated 50 Casual Male XL full-price retail stores, located primarily in strip centers or stand-alone locations. The majority of the merchandise carried in our Casual Male XL stores is moderate-priced basic or fashion-neutral items, such as jeans, casual slacks, t-shirts, polo shirts, dress shirts and suit separates. These stores also carry a full complement of our “better” private label collections. The average Casual Male XL retail store is approximately 3,300 square feet.

DXL Outlet /Casual Male XL Outlet Stores

At February 1, 2020, we operated 17 DXL outlet stores and 28 Casual Male XL outlet stores designed to offer a wide range of casual clothing for the big & tall customer at prices that are generally 20-25% lower than our moderate-priced merchandise. Much of the merchandise in our outlet stores is offered at discounted prices to cater to the value-oriented customer. In addition to private-label and branded merchandise at our “good” price tier, our outlets also carry clearance product obtained from DXL and Casual Male XL stores, offering the outlet customer the ability to purchase branded and fashion product for a reduced price.

The average DXL outlet is approximately 4,800 square feet and the average Casual Male XL outlet store is approximately 3,000 square feet.  

Rochester Clothing Stores

During fiscal 2019, we closed our Rochester Clothing stores, including our only store in Europe located in London, England.  Our decision to close the portfolio of Rochester stores was a store productivity and efficiency decision that was driven by the high occupancy costs associated with these prime locations.  Collectively, the five Rochester stores had become unprofitable which was the primary driver behind the decision to close. The Company continues to sell its Rochester-branded merchandise in its DXL stores and on its website.

International

We have two DXL stores in Toronto, Canada. These are the first DXL brand stores operated by the Company outside of the United States. We also have one franchised DXL store in the Middle East at the Symphony Mall in Kuwait City, Kuwait, which was opened in fiscal 2014 pursuant to a franchise agreement with The Standard Arabian Business & Enterprises Company (SABECO).  

DIRECT CHANNEL

Our direct business is a critical channel for growing sales and market share. Our direct channel represented 23.1% of our retail segment sales in fiscal 2019 as compared to 21.0% two years ago.  We define our direct business (which we also refer to as e-commerce) as sales that originate online, whether through our website, those initiated online at the store level, our Guest Engagement Center, or through a third-party marketplace. We want to serve our customers wherever and how they want to shop, whether in-person at a store, over the telephone, or online via a computer, smartphone or tablet.

We have the ability to showcase all of our store inventories online, resulting in additional transactions that are initiated online, but are ultimately completed in store.  In addition, our stores are able to fulfill an order for an item that is out-of-stock in our warehouse.  This capability has not only resulted in incremental sales, but it has also helped us reduce clearance merchandise at the store level and manage margins.

DXL Website

We are focused on providing an outstanding guest experience wherever our customer decides to shop with us, whether in our stores or online.  Our website allows us to reach big & tall consumers in areas where we may not have a store location.  From our website, customers can shop a complete offering of apparel from value-oriented to higher-end price points, and they can tailor their search by brand, size, performance, etc.  In addition, our DXL website offers a complete line of men’s footwear in extended sizes. 

With a growing preference for online shopping, we will continue to make enhancements each year as we strive to meet the changing needs and shopping behaviors of our customers.  In late fiscal 2018, we relaunched an upgraded website and throughout fiscal 2019 continued to make several additional enhancements to improve site performance and the customer’s overall shopping experience.  Traffic to our website also improved during fiscal 2019, due largely to changes in our digital marketing.  We believe that there remains significant growth potential for our website and, as we head into fiscal 2020, we will be making further enhancements to optimize and drive traffic to our website.  

 

7


 

Online Sales at Store Level

In support of our omni-channel approach, our store associates use our website to help fulfill our in-store customers’ clothing needs. If a wider selection of a lifestyle, color or size of an item is not available in our store, then our store associates can order the item for our customer online through our direct channel and have it shipped to the store or directly to the customer. Our customers also have the ability to shop-by-store and pick-up in store on the same day.

Online Marketplaces

We continue to broaden our reach through online, third-party marketplaces, which is another growth initiative for our direct business. A large portion of our assortment is available on Amazon, with Amazon Prime shipping.  Online marketplaces provide us an opportunity to grow our customer base and introduce new customers to our brand.

WHOLESALE CHANNEL

As part of our strategic growth, we implemented a wholesale business focused on the product development, manufacturing and distribution of big and tall product. This strategic growth initiative allows us to leverage our existing infrastructure, including DXL’s expertise in technical design and global sourcing. We believe the wholesale channel is a strong complement to our retail channel allowing us to broaden our presence in the marketplace and provides us an opportunity to access new customers who do not currently shop at DXL. 

MERCHANDISE PLANNING AND ALLOCATION  

Our merchandise planning and allocation function is critical to the effective management of our inventory, store assortments, product sizes and overall gross margin profitability. The merchandise planning and allocation team has an array of planning and replenishment tools available to assist in maintaining an appropriate level of inventory, in-stock positions at the store and for the direct channel, and pre-season planning for product assortments for each store and the direct channel. Additionally, in-season reporting identifies opportunities and challenges in inventory performance. Over the past several years, we have made, and we will continue to make, investments in implementing best practice tools and processes for our merchandise planning and allocation.

Our core merchandise makes up approximately 38% of our merchandise assortment. Our planning and allocation team estimates quantity and demand several months in advance to optimize gross margin and minimize end-of-season merchandise for all seasonal merchandise. We develop customized assortment strategies by store that accentuate lifestyle preferences for each particular store.

Our merchandising data warehouse provides the merchandising team with standardized reporting for monitoring assortment performance by product category and by store, identifying in-stock positions by size and generally monitoring overall inventory levels relative to selling. At season end, we analyze the overall performance of product categories, overall assortments and specific styles by store to focus on the opportunities and challenges for the next season’s planning cycle.

Utilizing a set of specific universal reporting tools, the merchandise planning and allocation team is able to fulfill their daily, weekly and monthly roles and responsibilities. These reporting tools provide focused and actionable views of the business to optimize the overall assortment by category and by store. We are confident that our inventory performance will be optimized by having all members of the merchandise planning and allocation team follow a standardized set of processes with the use of standardized reporting tools.

STORE OPERATIONS  

We believe that our store associates are the key to creating the highest quality experience for our customers. When we first began our conversion of stores from Casual Male XL to DXL, we committed to change the culture in our stores to be more guest centric in an effort to engage and build a relationship with our guests. Our overall goal was to assist our associates in becoming less task-oriented and more attentive to the customers apparel needs.  By establishing this relationship, associates are able to expand our customers’ wardrobe, not only making the customer look good, but helping them feel confident in their apparel choices. In order to accomplish this, we invested in educating our associates.  Our associates are trained to be wardrobe experts, capable of accommodating our customers’ style and fit needs with ready-to-wear clothing. Our associates are well versed in not only the product selection carried in their specific store, but also the product selection carried online.  With a point-of-sale system that can access items online for the customer who is physically in the store, our associates are able to fulfill all of their customers’ needs. Select stores also offer on-site tailoring in order to assist customers in receiving a perfectly tailored fit. In addition to product knowledge, our training approach includes behavioral training as well.  A key component to the success of this program is finding the right caliber of store associates. Our multi-unit, field management team receives extensive training on recruiting associates who are the correct fit for our stores. Our new DXL store management team hires are enrolled in “The DXL Experience Training Program,” with time spent in one of our two

 

8


 

Regional Training Centers. The culture has been created over the last ten years to promote from our internal associates, starting at the Assistant Store Manager level up to, and including, the Vice President of Store Operations and Guest Engagement level. Our Regional Vice Presidents give us touch-points in the field in addition to the Regional Sales Managers and the store management to ensure consistency in executing our standards and all programs and processes we deem important to our success.

Each new member of the store management team spends time in a DXL store, working with certified training managers to solidify his or her training before being released to the respective “home” store.  This allows the new store management team members to apply the skills learned during “The DXL Experience Training Program” so they will have the tools to manage their respective stores successfully. We are able to gauge the effectiveness of our training through measuring sales productivity at each level of the field organization, including individual sales associates. We believe these educational programs, together with monitoring sales metrics to help identify opportunities for further training, will improve sales productivity and strengthen our customer’s brand loyalty.

Each store is staffed with a store manager, assistant manager and associates. The store manager is responsible for achieving certain sales and operational targets. Our stores have an incentive-based commission plan for managers and selling staff to encourage associates to focus on our customer’s wardrobing needs and sales productivity.  Our field organization strives to promote from within a culture that has been building for ten years, with approximately 80% of the field organization’s multi-unit managers having managed one of our retail stores.

Our field organization is overseen by our Senior Vice President of Store Sales and Operations, Vice President of Store Operations and Training, Regional Vice Presidents and Regional Sales Managers, who provide management development and guidance to individual store managers. Each Regional Sales Manager is responsible for hiring and developing store managers at the stores assigned to that Regional Sales Manager’s market, and for the overall operations and profitability of those stores.

MARKETING AND ADVERTISING

We believe that our marketing initiatives are key to driving our top-line sales growth by increasing traffic to our stores and website. We are continuing to shift our marketing strategy away from our broad-based advertising to a more targeted, personalized, data-driven model where we can create personalization and ultimately engage differently with each of our customers based on their shopping behaviors.

We are continuing to rebuild the framework on our marketing program.  As we head into fiscal 2020, our marketing programs are driven by an increasingly stringent analytical perspective.  We are taking a fresh look at how we evaluate the success of a marketing campaign, establishing strong “return on ad spend” throughout, particularly with our digital advertising and CRM campaigns.  This data-driven philosophy will extend across all of our marketing initiatives as we look at new ways to engage our customers.  Our work with our customer segmentation, or “clustering”, is the key to our marketing objective.  While this will be a long-term and on-going project, it will ultimately drive our marketing approach, enabling us to create multiple targeted content and messaging to our various customer clusters. We made progress toward implementing a new CRM platform in fiscal 2019 and expect it to be complete in fiscal 2020.  

Our marketing program includes email, direct mail, loyalty program, direct marketing, digital marketing, social media and television and radio.  Similar to fiscal 2019, our marketing costs in fiscal 2020 will be heavily focused on our direct marketing initiatives, such as digital advertising, direct mail and loyalty incentives.  

GLOBAL SOURCING

We have built a strong internal team who is managing an international network of vendors and suppliers across the globe. We manufacture a significant percentage of our private-label merchandise primarily in Southeast Asian countries consisting of Vietnam, Bangladesh, Cambodia and India. While we do source some merchandise from China, we have diversified our global network outside of China and have moved certain programs into additional countries with duty-free opportunities such as Jordan and Mexico. We have strong-established relationships with many of the leading factories and mills across the globe. Our sourcing network consists of over 28 factories in 7 countries.  In fiscal 2019, approximately 50% of all our product needs were sourced directly.

Our global sourcing strategy is a balanced approach, which considers quality, cost and lead-time, depending on the requirements of the program. We believe our current sourcing structure is sufficient to meet our operating requirements and provide capacity for growth. The growth and effectiveness of our global direct sourcing program is a key component to the strength of merchandise margins.

In an effort to minimize foreign currency risk, all payments to our direct sourced vendors and buying agents are made in U.S. dollars through the use of letters of credit or payment on account.

 

9


 

DISTRIBUTION

All of our retail distribution operations are centralized at our headquarters located in Canton, Massachusetts. We believe that having a centralized distribution facility maximizes the selling space and in-stock position of our stores and reduces the necessary levels of back-room stock. In addition, the distribution center provides order fulfillment services for our e-commerce business. In-bound calls for our e-commerce business are received at our Canton facility and are primarily fulfilled by our distribution center.  If an order cannot be fulfilled by our distribution center, the order is completed at the store level.  For our wholesale business, we currently utilize two coastal third-party cross-dock facilities.

Our supply chain technology provides visibility for imports and domestic deliveries giving our buyers accurate shipping information and allowing the distribution center to plan staffing for arriving freight, resulting in reduced costs and improved receipt efficiency.

In fiscal 2019, we upgraded and enhanced our warehousing application for our distribution center systems, which included a new labor management system.  Our warehousing application enables us to streamline our distribution processes, enhance our in-transit times, and reduce our distribution costs. We will continually work to make improvements and upgrades to our software.

Since 2003, we have utilized United Parcel Services (“UPS”) for all of our store shipments as well as our domestic customer deliveries. By utilizing UPS, we are able to track all deliveries from the warehouse to our individual stores, including the status of in-transit shipments. In addition, we are able to provide our direct customers with Authorized Return Service and Web labels, making returns more convenient for them.  In October 2019, we renewed our contract with UPS through October 2022.

In order to service our International customers, we have contracted with a global e-commerce company for payment and shipment services.  Through this service, international customers view and pay for products in their local currency.  Our vendor then ships directly to our customer, which we believe helps avoid potential fraud and currency exchange rate risks.

MANAGEMENT INFORMATION SYSTEMS

The infrastructure of our management information systems is a priority to us. We believe that the investments we have made in this regard have improved our overall efficiency and improved our access to information enabling timely, data-driven decisions.

Our management information systems consist of a full range of retail merchandising and financial systems, which include merchandise planning and reporting, distribution center processing, inventory allocation, sales reporting, and financial processing and reporting. We believe that our current infrastructure provides us the ability and capacity to process transactions more efficiently and provides our management team with comprehensive tools with which to manage our business.

Using a retail business intelligence solution, we are able to integrate data from several sources and provide enterprise-wide analytics reporting. Over the past few years, we have developed a custom Assortment Suite application that leverages business intelligence and predictive analytics to provide high impact insights into core merchandising tasks. In an effort to improve our inventory management, we have created a standardized set of “best practices” for both our merchandise planning and allocation groups.

Our direct and retail channels maintain a shared inventory system and we operate a single-system platform for our DXL and Casual Male XL stores to deliver improved efficiencies.

During fiscal 2019, we upgraded our order management system, which improved our warehouse management and logistics capabilities for enhanced inventory visibility and order fulfillment.  In fiscal 2020, we plan to complete the implementation of a new CRM platform.  During fiscal 2019, we made significant progress toward this initiative; however, due to our current vendor’s exiting the market, the implementation will extend into fiscal 2020.  In the meantime, we are in the process of populating a repository for our data, which makes information more easily accessible.  This step is critical to the complete development of CRM.

We continually work to improve our web environment and the security of our systems. Our mobile and tablet optimized sites capitalize on the growing use of mobile devices to look up store information, review product offerings, and complete purchases. In addition, our current website is fully integrated with a global e-commerce company to accommodate international customers by providing multi-currency pricing, payment processing, and international shipping.

COMPETITION

Our business faces competition from a variety of sources, including department stores such as J.C. Penney and Dillard’s, mass merchandisers such as Kohl’s, other specialty stores and discount and off-price retailers that sell big & tall men’s clothing. While we have successfully competed on the basis of merchandise selection, comfort and fit, customer service and desirable store locations,

 

10


 

there can be no assurances that other retailers, including e-commerce retailers, will not adopt purchasing and marketing concepts similar to ours.  Discount retailers with significant buying power, such as Wal-Mart and J.C. Penney, represent a source of competition for us. The direct business has many competitors, including the King Size catalog and website as well as online marketplaces, such as Amazon.

The United States big & tall men’s clothing market is highly competitive with many national and regional department stores, specialty apparel retailers, single market operators and discount stores offering a broad range of apparel products similar to ours, the similarity being that the clothes they sell are intended for big and tall men. Besides retail competitors, we consider any casual apparel manufacturer operating in outlet malls throughout the United States to be a competitor in the casual apparel market. We believe that we are the only national operator of men’s apparel stores focused exclusively on the men’s big & tall market.

SEASONALITY

Historically, and consistent with the retail industry, we have experienced seasonal fluctuations as it relates to our operating income, net income, and free cash flow. Traditionally, a significant portion of our operating income, net income, and free cash flow is generated in the fourth quarter, as a result of the holiday season.  Our inventory is typically at peak levels by the end of the third quarter, which represents a significant use of cash which is then relieved in the fourth quarter as we sell-down our inventory through the holiday shopping season.

TRADEMARKS/TRADEMARK LICENSE AGREEMENTS   

We own several service marks and trademarks relating to our businesses, including, among others, “Destination XL®”, “DXL®”, “DXL Mens Apparel®”, “Big on Being Better®”, “Casual Male®”, “Casual Male XL®”, “Rochester Clothing®”, “Rochester Big & Tall®”, “Harbor Bay®”, “Oak Hill®”, “Continuous Comfort®”, “Synrgy™”, “Twenty-Eight Degrees™”, “Society of One®” and “True Nation®”. We also hold a U.S. patent for an extendable collar system, which is marketed as “Neck-Relaxer®” and a U.S. copyright for a no-iron hang tag.

EMPLOYEES

As of February 1, 2020, we had approximately 2,353 employees. We hire additional temporary employees during the peak Fall and Holiday seasons. None of our employees is represented by any collective bargaining agreement.

AVAILABLE INFORMATION

Our corporate website is www.dxl.com. Our investor relations site is http://investor.dxl.com. We make available through our website, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to such reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we have electronically filed such material with, or furnished such materials to, the Securities and Exchange Commission. The SEC maintains an internet site that contains reports, proxy and information statements, and other information for issuers that file electronically with the SEC at http://www.sec.gov.

 

 

 

11


 

Item 1A. Risk Factors

The following risk factors are the important factors of which we are aware that could cause actual results, performance or achievements to differ materially from those expressed in any of our forward-looking statements. We operate in a continually changing business environment and new risk factors emerge from time to time. Other unknown or unpredictable factors also could have material adverse effects on our future results, performance or achievements. We cannot assure you that our projected results or events will be achieved or will occur.

Risks Related to Our Company and Our Industry

 

Business interruption caused by the recent Coronavirus pandemic has resulted in temporary store closings and could limit our ability to operate our business.

 

The recent outbreak of a novel strain of coronavirus (COVID-19) in the U.S. has resulted in the temporary closure of all of our retail store locations effective March 17, 2020.  We are expecting that the stores will remain closed through at least March 28, 2020, but given the uncertainty regarding COVID-19, we cannot assure that our retail store locations will re-open at that time or whether our retail stores will have to remain closed longer.  In addition, as discussed further below, COVID-19 potentially may affect our supply chain and operation of our distribution center.  A significant business interruption such as this may have an adverse effect on our financial results and access to liquidity.  Moreover, the COVID-19 has begun to have indeterminable adverse effects on the world economy, and our business and results of operations could be adversely affected to the extent that this COVID-19 harms the global economy.

 

We may not be successful in executing our strategy and growing our market share.

For us to be successful in the future and maintain growth, we must be able to continue increasing our share of the big & tall men’s apparel market. Our growth is dependent on our ability to continue to build upon our DXL brand, maintain our existing customers and continue to attract new customers. Our failure to execute our strategy successfully could prevent us from growing our market share, which could have a material adverse effect on our results of operations, cash flows and financial position, including if we were unable to:  

 

grow our DXL e-commerce business;

 

predict and respond to fashion trends, while offering our customers a broad selection of merchandise in an extended selection of sizes;  

 

develop an effective modern marketing program to build store and digital awareness as well as increase store and online traffic attract customers across all channels and grow sales;

 

grow our existing customer base;

 

attract and retain new customers across all channels;

 

hire qualified store management and store associates, especially in light of low unemployment rates;

 

continue to grow and then sustain number of transactions, units-per-transaction and share of wallet; and

 

operate at appropriate operating margins.

Our marketing programs and efforts to drive traffic to our stores and convert that traffic into an increased loyal customer base are critical to achieving market share growth within the big & tall men’s apparel market and may not be successful.

Our ability to increase our share of the big & tall men’s apparel market is largely dependent on effectively marketing our merchandise to all of our target customers in several diverse market segments so that they will become loyal shoppers who spend a greater portion of their wallet on our product offerings. In order to grow our market share, we depend on the success of our marketing and advertising in a variety of ways, including television and radio advertising, advertising events, loyalty programs, catalogs, and digital marketing, including social media, e-commerce and customer prospecting. Our business is directly impacted by the success of these efforts and those of our vendors. Future marketing efforts by us, our vendors or our other licensors, may be costly and, if not successful, may negatively affect our ability to meet our sales goals and gain market share.

Our direct business is a significant component of our growth strategy, and the failure to develop our e-commerce and internet infrastructure could disrupt our business and negatively impact our sales.

We continue to have increasing levels of sales made through online shopping and via mobile devices.  We have made significant investments in capital spending and labor to develop these channels and invested in digital media to attract new customers. Growth of

 

12


 

our overall sales is dependent on customers’ continuing to expand their online purchases in addition to in-store purchases. We cannot accurately predict the rate at which online purchases will expand.  

Our success in growing our direct business will depend in part upon our development of an increasingly sophisticated e-commerce experience and infrastructure. Increasing customer sophistication requires that we provide additional website features and functionality, in order to be competitive in the marketplace and maintain market share. We continually update our website features, but we cannot predict future trends and required functionality or our adoption rate for customer preferences.  In addition, we are vulnerable to additional risks and uncertainties associated with e-commerce sales, including security breaches, cyber-attacks, consumer privacy concerns, changes in state tax regimes and government regulation of internet activities. Our failure to respond to these risks and uncertainties successfully could reduce our direct sales, increase our costs and diminish our growth prospects, which could negatively affect our operating results.

 

The growth of our wholesale segment may not be successful.  

As part of our strategic growth plan, we launched a wholesale segment in fiscal 2018 focused on product development and distribution relationships with key retailers. We are working on developing and distributing both private label and co-branded big & tall men’s apparel lines. The success of this strategic initiative depends on a number of factors, including our ability to grow our wholesale customer base, develop a cost-effective infrastructure, and sustain adequate liquidity to meet the longer lead times associated with the wholesale business. In addition, because our wholesale customers order merchandise on a “purchase order” basis, as our wholesale business grows, any decision by one of our customers to decrease their order volume or cease purchasing from us could adversely affect our wholesale revenues and profitability.  

If we are unable to develop and implement our omni-channel initiatives successfully, our market share and financial results could be adversely affected.

Our customer’s shopping behavior continues to evolve across multiple channels and we are working to meet his needs.  While we consider ourselves an omni-channel retailer, we continue to make ongoing investments in our information technology systems to support evolving omni-channel capabilities.  

Omni-channel retailing is rapidly evolving and our success depends on our ability to anticipate and implement innovations in sales and marketing technology and logistics in order to appeal to existing and potential customers who increasingly rely on multiple channels to meet their shopping needs.  In addition, our competitors are also investing in omni-channel initiatives, some of which may be more successful than our initiatives.

If the investment in our omni-channel initiatives is not successful, our systems are unable to support such initiatives, or if our competitors are more successful, our financial results and our market penetration may be adversely affected.

The loss of, or disruption in, our centralized distribution center could negatively impact our business and operations.

The majority of our merchandise for our stores and e-commerce operations is received into our centralized distribution center in Canton, Massachusetts, where it is then processed, sorted and shipped to our stores or directly to our customers. We depend in large part on the orderly operation of this receiving and distribution process, which depends, in turn, on adherence to shipping schedules and effective management of the distribution center. Although we believe that our receiving and distribution process is efficient and well-positioned to support our strategic plans, events beyond our control, such as disruptions in operations due to fire or other catastrophic events, employee matters or shipping problems, could result in delays in the delivery of merchandise to our stores or directly to our customers. In addition, the recent COVID-19 outbreak in the U.S., including Massachusetts, could disrupt operations at our distribution center, including potential closure if an employee is diagnosed with COVID-19 or there is a governmentally-imposed quarantine or other similar limitations in response to the outbreak.

With all of our management information systems centralized in our corporate headquarters, any disruption or destruction of our system infrastructure could materially affect our business. This type of disaster is mitigated by our offsite storage and disaster recovery plans, but we would still incur business interruption that may impact our business for several weeks.

Although we maintain business interruption and property insurance, we cannot be sure that our insurance will be sufficient, or that insurance proceeds will be timely paid to us, in the event our distribution center is shut down for any reason or if we incur higher costs and longer lead times in connection with a disruption from our distribution center.

 

13


 

Our business may be adversely affected by the failure to identify suitable store locations and acceptable lease terms.  

We currently lease all of our store locations. Identifying and securing suitable store locations and renegotiating leases for current store locations at acceptable lease terms is critical to our store base and positioning.  We generally have been able to negotiate acceptable lease rates and extensions, as needed.  However, we cannot be certain that desirable locations at acceptable lease rates and preferred lease terms will continue to be available.  In addition, if we need to pay higher occupancy costs in the future to secure ideal locations, the increased cost may adversely impact our financial performance and liquidity. Recent trends toward increased landlord consolidation could also negatively affect our ability to obtain and retain locations.  

Our business is highly competitive, and competitive factors may reduce our revenues and profit margins.

The United States big & tall men’s apparel market is highly competitive with many national and regional department stores, mass merchandisers, specialty apparel retailers, discount stores and online retailers offering a broad range of apparel products similar to the products that we sell. Besides retail competitors, we consider any manufacturer of big & tall men’s merchandise operating in outlet malls throughout the United States to be a competitor. It is also possible that another competitor, either a mass merchant or a men’s specialty store or specialty apparel catalog, could gain market share in big & tall men’s apparel due to more favorable pricing, locations, brand and fashion assortment and size availability. Many of our competitors and potential competitors may have substantially greater financial, manufacturing and marketing resources than we do.

The presence in the marketplace of various fashion trends and the limited availability of shelf space also can affect competition. We may not be able to compete successfully with our competitors in the future and could lose market share. A significant loss of market share would adversely affect our revenues and results of operations.

In addition, we maintain exclusivity arrangements with several of the brands that we carry.  If we were to lose any of these exclusivity arrangements or brands altogether, our revenues may be adversely affected.

Our business is seasonal and is affected by general economic conditions.

Our business is seasonal. Historically, a significant portion of our operating income has been generated during our fourth quarter (November-January). If, for any reason, we miscalculate the demand for our products during our fourth quarter, our sales in that quarter could decline, resulting in higher labor costs as a percentage of sales, lower margins and excess inventory, which could cause our annual operating results to suffer. In addition, our operations may be negatively affected by local, regional or national economic conditions, such as levels of disposable consumer income, consumer debt, interest rates and consumer confidence. Due to our seasonality, the possible adverse impact from such risks is potentially greater if any such risks occur during our fourth quarter.  

We are dependent on third parties for the manufacture of the merchandise we sell.

We do not own or operate any manufacturing facilities and are therefore entirely dependent on third parties to manufacture the merchandise we sell. Without adequate supplies of merchandise to sell to our customers in the merchandise styles and fashions demanded by our particular customer base, sales would decrease materially and our business would suffer. We are dependent on these third parties’ ability to fulfill our merchandise orders and meet our delivery terms. In the event that manufacturers are unable or unwilling to ship products to us in a timely manner or continue to manufacture products for us, we would have to rely on other current manufacturing sources or identify and qualify new manufacturers. We might not be able to identify or qualify such manufacturers for existing or new products in a timely manner and such manufacturers might not allocate sufficient capacity to us in order to meet our requirements. Our inability to secure adequate and timely supplies of private label merchandise would negatively impact proper inventory levels, sales and gross margin rates, and ultimately our results of operations.

In addition, even if our current manufacturers continue to manufacture our products, they may not maintain adequate controls with respect to product specifications and quality and may not continue to produce products that are consistent with our standards. If we were forced to rely on manufacturers who produce products of inferior quality, then our brand and customer satisfaction would likely suffer. These manufacturers may also increase the cost to us of the products we purchase from them. The Company publishes a Code of Conduct, which is a part of every agreement requiring compliance by the manufacturing facilities.  If, despite third-party audits, the manufacturing facilities engage in workplace or human rights violations and we are unable to identify or correct it, it may negatively affect our business and harm our brand.

Furthermore, in the event that commercial transportation is curtailed or substantially delayed, we may not be able to maintain adequate inventory levels of important merchandise on a consistent basis, which would negatively impact our sales and potentially erode the confidence of our customer base, leading to further loss of sales and an adverse impact on our results of operations.

 

14


 

Our business may be adversely affected by economic, health and political issues abroad and changes in U.S. economic policies.

Economic and civil unrest, work stoppages, disease epidemics and health-related concerns, including the recent COVID-19 outbreak, in areas of the world where we source merchandise for our global sourcing program, as well as shipping and docking issues, could adversely affect the availability and cost of such merchandise. Disruptions in the global transportation network, such as political instability, the financial instability of our suppliers, merchandise quality issues, trade restrictions, labor and port strikes, tariffs, currency exchange rates, transport capacity and costs, inflation and other factors relating to foreign trade are beyond our control. The recent COVID-19 outbreak may lead to further quarantines and widespread disruptions to travel and economic activity in regions where we have suppliers, similar to what was implemented in China in early 2020.  While we have significantly reduced the percentage of product we source from China, we cannot be assured that our vendors for our branded apparel do not face a material risk to their operations from the COVID-19 outbreak.  At this time, it is unclear what effect, if any, the outbreak and resulting disruptions may have on our supply chain.  In the event of disruptions or delays in deliveries due to economic or political conditions in foreign countries, such disruptions or delays could adversely affect our results of operations unless and until alternative supply arrangements could be made. These and other issues affecting our suppliers could adversely affect our business and financial performance.

While current tariffs have not had a material impact on our business, any further enactment of any new legislation in the U.S. that would impact current international trade regulations, exports or imports or tax policy with respect to foreign activities, or executive action affecting international trade agreements, including the uncertainty concerning the trading status of certain countries and/or retaliatory duties, taxes, quotas or other trade sanctions, could increase the cost of merchandise purchased from suppliers in such countries and could adversely affect our business and financial performance.

Our ability to operate and expand our business and to respond to changing business and economic conditions will depend on the availability of adequate capital.

The operation of our business, the rate of our expansion and our ability to respond to changing business and economic conditions depend on the availability of adequate capital, which in turn depends on cash flow generated by our business and, if necessary, the availability of equity or debt capital. We will also need sufficient cash flow to meet our obligations under our existing debt agreements.

The amount that we are able to borrow and have outstanding under our credit facility at any given time is determined using an availability formula based on eligible assets. As a result, our ability to borrow is subject to certain risks and uncertainties, such as advance rates and the amount and quality of inventory, which could reduce the funds available to us under our credit facility.

We cannot assure you that our cash flow from operations or cash available under our credit facility will be sufficient to meet our needs. If we are unable to generate sufficient cash flows from operations in the future, we may have to obtain additional financing. If we incur additional indebtedness, that indebtedness may contain significant financial and other covenants that may significantly restrict our operations. We cannot ensure that we could obtain refinancing or additional financing on favorable terms or at all.

Changes to LIBOR may negatively impact us.

The London interbank offered rate (“LIBOR”) is the basic rate of interest used in lending between banks on the London interbank market and is widely used as a reference for setting the interest rate on loans globally. Our current credit facility provides us an option to convert some of our prime-based borrowings into short-term LIBOR contracts.

 

Regulators in the United Kingdom that oversee LIBOR has stated that it cannot guarantee LIBOR's availability beyond the end of 2021. In the absence of a LIBOR rate, our credit facility provides for a comparable or successor rate to be used.  As such, while we do not expect that we will have to renegotiate our credit facility, we do not know what the comparable or successor rate will be and whether it could result in increased interest costs. In the absence of a favorable LIBOR or successor rate, our borrowings bear interest based on the Federal Funds rate. At February 1, 2020, approximately $48.0 million of our total outstanding debt of $54.1 million was in short-term LIBOR-based contracts.  Until a comparable or successor rate is identified, we cannot provide assurance that future interest rate charges will not have a material negative impact on our business, financial position, or operating results.

Our business may be negatively impacted and we may be liable if third parties misappropriate proprietary information of our customers and breach our security systems.

We may be harmed by security risks we face in connection with our electronic processing and transmission of confidential customer information. During fiscal 2019, approximately 86% of our sales were settled through credit and debit card transactions. While our Board of Directors has a Cybersecurity and Data Privacy Committee to oversee the monitoring and management of cyber risk and data privacy for our Company, and we have not had any security breaches to date, any breach could expose us to risks of loss, litigation and liability and could adversely affect our operations as well as cause our shoppers to stop shopping with us as a result of their lack

 

15


 

of confidence in the security of their personally identifiable information, which could have a negative impact on our sales and profitability. We attempt to limit exposures to security breaches and sensitive customer data through the use of “tokens” in connection with both in-store and online credit card transactions, which eliminates the storage of credit card numbers. Like many retailers, we have seen an increase in cyberattack attempts, predominantly through phishing and social engineering scams, and in particular, ransomware. While none of these attempts has been successful, there can be no assurance that our continued security measures will be effective or sufficient in the future.  If third parties are able to penetrate our network security or otherwise misappropriate the personal information or credit card information of our customers or if third parties gain unauthorized and improper access to such information, we could be subject to liability. These liabilities could include claims for unauthorized purchases with credit card information, impersonation or other similar fraud claims, or claims for other misuses of personal information, including unauthorized marketing purposes, and could ultimately result in litigation. Liability for misappropriation of this information could be significant.

Further, if a third party were to use this proprietary customer information in order to compete with us, it could have a material adverse impact on our business and could result in litigation.

We may be unable to predict fashion trends and customer preferences successfully.

Customer tastes and fashion trends are volatile and tend to change rapidly. Our success depends in large part upon our ability to predict effectively and respond to changing fashion tastes and consumer demands and to translate market trends to appropriate saleable product offerings. If we are unable to predict or respond to changing styles or trends successfully and misjudge the market for products or any new product lines, our sales will be impacted and we may be faced with a substantial amount of unsold inventory or missed opportunities. In response, we may be forced to rely on additional markdowns or promotional sales to dispose of excess, slow-moving inventory, which would decrease our revenues and margins. In addition, the failure to satisfy consumer demand, specifically in our DXL stores and website, could have serious longer-term consequences, such as an adverse impact on our brand value and the loss of market share to our competitors.

The loss of any of our key trademarks or licenses could adversely affect demand for our products.

We own and use a number of trademarks and operate under several trademark license agreements. We believe that certain of these trademarks have significant value and are instrumental in our ability to create and sustain demand for and to market our products. We cannot be certain that these trademarks and licensing agreements will remain in effect and enforceable or that any license agreements, upon expiration, can be renewed on acceptable terms or at all. In addition, any future disputes concerning these trademarks and licenses may cause us to incur significant litigation costs or force us to suspend use of the disputed trademarks.

General Risks That May Affect Our Business

If our long-lived assets become impaired, we may need to record significant non-cash impairment charges.

Periodically, we review our long-lived assets for impairment whenever economic events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Specifically, if an individual store location is unable to generate sufficient future cash flows, we may be required to record a partial or full impairment of that store’s assets.  In addition, significant negative industry or general economic trends, disruptions to our business and unexpected significant changes or planned changes in our use of the assets (such as store relocations or closures) may also result in impairment charges. Any such impairment charges, if significant, could adversely affect our financial position and results of operations.

Our success depends significantly on our key personnel and our ability to attract and retain additional personnel.

Our future success is dependent on the personal efforts, performance and abilities of our key management, which includes our executive officers as well as several significant members of our senior management. The loss of any of our senior management may result in a loss of organizational focus, poor operating execution, an inability to identify and execute strategic initiatives, an impairment in our ability to identify new store locations, and an inability to consummate possible acquisitions. The competition is intense for the type of highly skilled individuals with relevant industry experience that we require and we may not be able to continue to attract and retain new employees of the caliber needed to achieve our objectives.

Fluctuations in the price, availability and quality of raw materials and finished goods could increase costs.

Fluctuations in the price, availability and quality of fabrics or other raw materials used in the manufacturing of our merchandise could have a material adverse effect on our gross margin or on our ability to meet our customers’ demands. The prices for fabrics depend on demand and market prices for the raw materials used to produce them. To the extent that we cannot offset these cost increases with

 

16


 

other cost reductions or efficiencies, such higher costs will need to be passed on to our customers. Such increased costs could lead to reduced customer demand, which could have a material adverse effect on our results of operations and cash flow.

Failure to comply with laws, rules and regulations could negatively affect our business operations and financial performance.

Our business is subject to federal, state, local and international laws, rules and regulations, such as state and local wage and hour laws, the U.S. Foreign Corrupt Practices Act, the Employee Retirement Income Security Act (“ERISA”), securities laws, import and export laws (including customs regulations), privacy and information security regulations, unclaimed property laws, the Affordable Care Act and many others. The effect of some of these laws and regulations may be to increase the cost of doing business and may have a material impact on our earnings. In addition, the complexity of the regulatory environment in which we operate and the related cost of compliance are both increasing due to legal and regulatory requirements and increased enforcement. In addition, as a result of operating in Canada, we must comply with their laws and regulations, which may differ substantially from, and may conflict with, corresponding U.S. laws and regulations. We may also be subject to investigations or audits by governmental authorities and regulatory agencies, which can occur in the ordinary course of business or which can result from increased scrutiny from a particular agency towards an industry, country or practice. If we fail to comply with laws, rules and regulations or the manner in which they are interpreted or applied, we may be subject to government enforcement action, class action litigation or other litigation, damage to our reputation, civil and criminal liability, damages, fines and penalties, and increased cost of regulatory compliance, any of which could adversely affect our results of operations and financial performance.

 

Risks Related to Our Corporate Structure and Stock

Our stock price has been and may continue to be extremely volatile due to many factors.

The market price of our common stock has fluctuated in the past and may increase or decrease rapidly in the future depending on news announcements and changes in general market conditions. The following factors, among others, may cause significant fluctuations in our stock price:

 

overall changes in the economy and general market volatility;

 

news announcements regarding our quarterly or annual results of operations;

 

quarterly comparable sales;

 

acquisitions;

 

competitive developments;

 

governmental regulation (such as increased wage and paid benefits laws);

 

litigation affecting us; or

 

market views as to the prospects of the retail industry generally.

We may not be able to maintain the listing of our common stock on Nasdaq.

Our common stock currently trades on The Nasdaq Global Select Market.  Nasdaq has continued listing standards that we must maintain to avoid delisting, including, among others, a minimum bid price requirement of $1.00 per share. If our stock closes with a bid price of less than $1.00 for more than 30 consecutive business days, Nasdaq will send a deficiency notice to us for not complying with the minimum bid price requirement. The closing bid price of our common stock has been below a $1.00 consecutively since February 24, 2020.  If the bid price does not exceed $1.00 before April 3, 2020, Nasdaq will send us a deficiency notice, and our common stock may be subject to delisting. 

If we are unable to comply with Nasdaq’s continued listing standards and our common stock is delisted, our common stock would be eligible for quotation on "over-the-counter" markets, which are generally considered to be a less efficient system than listing on markets such as Nasdaq or other national exchanges because of lower trading volumes, transaction delays and reduced security analyst and news media coverage.  Any delisting of our common stock could adversely affect the market liquidity of our common stock and the market price of our common stock could decrease.  Furthermore, if our common stock were delisted it could adversely affect our ability to obtain financing for the continuation of our operations and/or result in the loss of confidence by investors, customers, suppliers and employees. 

Our certificate of incorporation, as amended, limits transfers of our common stock and may, along with state law, inhibit potential acquisition bids that could be beneficial to our stockholders.

Our certificate of incorporation, as amended, contains provisions that restrict any person or entity from attempting to purchase our stock, without prior permission from the Board of Directors, to the extent that such transfer would (i) create or result in an individual

 

17


 

or entity becoming a five-percent shareholder of our stock, or (ii) increase the stock ownership percentage of any existing five-percent shareholder. These provisions provide that any transfer that violates such provisions shall be null and void and would require the purported transferee to, upon demand by us, transfer the shares that exceed the five percent limit to an agent designated by us for the purpose of conducting a sale of such excess shares. These provisions would make the acquisition of our Company more expensive to the acquirer and could significantly delay, discourage, or prevent third parties from acquiring our Company without the approval of our Board of Directors.

In addition, we are subject to certain provisions of Delaware law, which could also delay or make more difficult a merger, tender offer or proxy contest involving us. In particular, Section 203 of the Delaware General Corporation Law prohibits a Delaware corporation from engaging in certain business combinations with any interested stockholder for a period of three years unless specific conditions are met. In addition, certain provisions of Delaware law could have the effect of delaying, deferring or preventing a change in control of us, including, without limitation, discouraging a proxy contest or making more difficult the acquisition of a substantial block of our common stock. The provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock.

 

 

18


 

Item 1B. Unresolved Staff Comments

None.

 

 

Item 2. Properties

Our corporate offices and retail distribution center are located at 555 Turnpike Street in Canton, Massachusetts. The property consists of a 755,992 gross square foot building located on approximately 27.3 acres. We owned the property until January 30, 2006, at which time we entered into a sale-leaseback transaction, whereby we entered into a twenty-year lease agreement for an initial annual rent payment of $4.6 million, with periodic increases every fifth anniversary of the lease. In fiscal 2006, we realized a gain of approximately $29.3 million on the sale of this property, which was deferred and, through the end of fiscal 2018, the Company was amortizing the gain over the initial 20 years of the related lease agreement. At February 2, 2019, the balance of the deferred gain was $10.3 million.  In the first quarter of fiscal 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842).” This ASU is a comprehensive new lease accounting standard that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. In accordance with the guidance under ASU 2016-02, as part of our adoption of ASU 2016-02, the remaining balance of the deferred gain of $10.3 million was recognized as a credit to the opening accumulated deficit for fiscal 2019, see Note A to the Consolidated Financial Statements.  

As of February 1, 2020, we operated 228 Destination XL retail stores, 17 Destination XL outlet stores, 50 Casual Male XL retail stores and 28 Casual Male XL outlet stores.  We lease all of these stores directly from owners of several different types of centers, including life-style centers, shopping centers, freestanding buildings, outlet centers and downtown locations. The store leases are generally 5 to 10 years in length and contain renewal options extending their terms by between 5 and 10 years. Following this discussion is a listing by state of all store locations open at February 1, 2020.

Sites for new stores are selected based on several factors, including the demographic profile of the area in which the site is located, the types of stores and other retailers in the area, the location of the store within the center and the attractiveness of the store layout. We also utilize financial models to project the profitability of each location using assumptions such as the center’s sales per square foot averages, estimated occupancy costs and return on investment requirements.

See also “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Liquidity and Capital Resources—Capital Expenditures.”

 

 

 

19


 

Store count by state at February 1, 2020

 

United States

 

DXL retail and

outlet stores

 

 

Casual Male XL

retail and outlet stores

 

Alabama

 

2

 

 

2

 

Arizona

 

6

 

 

 

 

Arkansas

 

 

 

 

1

 

California

 

26

 

 

7

 

Colorado

 

3

 

 

2

 

Connecticut

 

3

 

 

2

 

Delaware

 

2

 

 

 

 

District of Columbia

 

 

 

 

 

 

Florida

 

12

 

 

8

 

Georgia

 

4

 

 

3

 

Idaho

 

1

 

 

 

 

Illinois

 

12

 

 

4

 

Indiana

 

6

 

 

3

 

Iowa

 

3

 

 

1

 

Kansas

 

2

 

 

 

 

Kentucky

 

3

 

 

 

 

Louisiana

 

3

 

 

1

 

Maine

 

2

 

 

 

 

Maryland

 

6

 

 

4

 

Massachusetts

 

5

 

 

2

 

Michigan

 

14

 

 

1

 

Minnesota

 

2

 

 

2

 

Mississippi

 

 

 

 

2

 

Missouri

 

5

 

 

4

 

Montana

 

1

 

 

 

 

Nebraska

 

2

 

 

 

 

Nevada

 

3

 

 

 

 

New Hampshire

 

3

 

 

 

 

New Jersey

 

8

 

 

5

 

New Mexico

 

1

 

 

 

 

New York

 

17

 

 

2

 

North Carolina

 

4

 

 

4

 

North Dakota

 

 

 

 

1

 

Ohio

 

10

 

 

1

 

Oklahoma

 

2

 

 

 

 

Oregon

 

2

 

 

1

 

Pennsylvania

 

11

 

 

7

 

Rhode Island

 

1

 

 

 

 

South Carolina

 

4

 

 

 

 

South Dakota

 

1

 

 

 

 

Tennessee

 

7

 

 

1

 

Texas

 

25

 

 

3

 

Utah

 

2

 

 

 

 

Vermont

 

1

 

 

 

 

Virginia

 

6

 

 

2

 

Washington

 

5

 

 

 

 

West Virginia

 

 

 

 

1

 

Wisconsin

 

5

 

 

1

 

 

 

 

 

 

 

 

 

 

International

 

 

 

 

 

 

 

 

Toronto, Canada

 

2

 

 

 

 

 

 

20


 

Item 3. Legal Proceedings

From time to time, we are subject to various legal proceedings and claims that arise in the ordinary course of business. Management believes that the resolution of these matters will not have a material adverse impact on our future results of operations or financial position.

Item 4. Mine Safety Disclosure

Not applicable.

 

 

PART II.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is listed for trading on the Nasdaq Global Select Market under the symbol “DXLG”.

Holders

As of March 12, 2020, based upon data provided by the transfer agent for our common stock, there were approximately 86 holders of record of our common stock. The number of holders does not include individuals or entities who beneficially own shares but whose shares are held of record by a broker or clearing agent.

Issuer Purchases of Equity Securities

There were no stock repurchases during fiscal 2019.

 


 

21


 

Stock Performance Graph

The following Performance Graph compares our cumulative stockholder return with a broad market index (Standard & Poor’s 500) and one published industry index (Dow Jones U.S. Apparel Retailers) for each of the most recent five years ended January 31. The cumulative stockholder return for shares of our common stock (“DXLG”) and each of the indices is calculated assuming that $100 was invested on January 31, 2015. We paid no cash dividends during the periods shown. The performance of the indices is shown on a total return (dividends reinvested) basis. The graph lines merely connect January 31 of each year and do not reflect fluctuations between those dates. In addition, we have included a chart of the annual percentage return of our common stock, the S&P 500 and the Dow Jones U.S. Apparel Retailers.

 

Annual Return Percentage

 

 

 

Year ended

 

Company/Index

 

 

 

Jan 16

 

 

Jan 17

 

 

Jan 18

 

 

Jan 19

 

 

Jan 20

 

DXLG

 

 

(15.4

%)

 

 

(23.3

%)

 

 

(21.8

%)

 

 

(2.3

%)

 

 

(56.0

%)

S&P 500

 

 

(2.7

%)

 

 

18.3

%

 

 

20.4

%

 

 

(2.0

%)

 

 

19.2

%

Dow Jones U.S. Apparel Retailers

 

 

(2.9

%)

 

 

(4.5

%)

 

 

9.4

%

 

 

8.4

%

 

 

10.8

%

 

Indexed Returns

 

 

 

Base Period

 

 

 

 

 

 

Jan 15

 

 

Jan 16

 

 

Jan 17

 

 

Jan 18

 

 

Jan 19

 

 

Jan 20

 

Company/Index

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DXLG

 

$

100

 

 

$

84.65

 

 

$

64.96

 

 

$

50.79

 

 

$

49.61

 

 

$

21.85

 

S&P 500

 

$

100

 

 

$

97.26

 

 

$

115.02

 

 

$

138.45

 

 

$

135.67

 

 

$

161.68

 

Dow Jones U.S. Apparel Retailers

 

$

100

 

 

$

97.15

 

 

$

92.75

 

 

$

101.48

 

 

$

110.01

 

 

$

121.94

 

 

The performance graph above shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section. This graph will not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

 

 

 

 

22


 

Item 6. Selected Financial Data

The following tables set forth selected consolidated financial data of our Company as of and for each of the years in the five-year period ended February 1, 2020 and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our accompanying Consolidated Financial Statements and Notes thereto.

We derived the selected financial data presented below for the periods or dates indicated from our consolidated financial statements. Our consolidated financial statements as of and for the five-year period ended February 1, 2020 were audited by KPMG LLP, an independent registered public accounting firm. Our consolidated financial statements as of and for the years ended February 1, 2020, February 2, 2019 and February 3, 2018 are included in this Annual Report.

For a discussion of certain factors that materially affect the comparability of the selected consolidated financial data or cause the data reflected herein not to be indicative of our future results of operations or financial condition, see Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  

 

 

 

Fiscal Years Ended (1)

 

 

 

 

February

1, 2020

(Fiscal 2019)

 

 

February

2, 2019

(Fiscal 2018)

 

 

February

3, 2018

(Fiscal 2017)

 

 

January

28, 2017

(Fiscal 2016)

 

 

January

30, 2016

(Fiscal 2015)

 

 

 

 

(In millions, except per share and operating data)

 

 

INCOME STATEMENT DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

474.0

 

 

$

473.8

 

 

$

468.0

 

 

$

450.3

 

 

$

442.2

 

 

Gross profit, net of occupancy costs

 

 

204.2

 

 

 

211.3

 

 

 

210.4

 

 

 

204.9

 

 

 

203.8

 

 

Selling, general and administrative expenses

 

 

180.7

 

 

 

183.9

 

 

 

193.2

 

 

 

173.3

 

 

 

180.6

 

 

Corporate restructuring and CEO transition costs (2)

 

 

0.7

 

 

 

4.3

 

 

 

 

 

 

 

 

 

 

 

Exit costs associated with London operations (3)

 

 

1.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairment of assets (4)

 

 

0.9

 

 

 

4.6

 

 

 

4.1

 

 

 

0.4

 

 

 

 

 

Depreciation and amortization

 

 

24.6

 

 

 

28.7

 

 

 

31.1

 

 

 

30.2

 

 

 

28.4

 

 

Operating income (loss)

 

 

(4.4

)

 

 

(10.1

)

 

 

(18.0

)

 

 

1.0

 

 

 

(5.2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision (benefit) for income taxes

 

 

0.1

 

 

 

(0.1

)

 

 

(2.6

)

(5)

 

0.2

 

 

 

0.3

 

 

Net loss

 

$

(7.8

)

 

$

(13.5

)

 

$

(18.8

)

 

$

(2.3

)

 

$

(8.4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share - diluted

 

$

(0.16

)

 

$

(0.28

)

 

$

(0.39

)

 

$

(0.05

)

 

$

(0.17

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventories

 

$

102.4

 

 

$

106.8

 

 

$

103.3

 

 

$

117.4

 

 

$

125.0

 

 

Property and equipment, net

 

 

78.3

 

 

 

92.5

 

 

 

111.0

 

 

 

124.3

 

 

 

125.0

 

 

Total assets

 

 

390.9

 

 

 

226.1

 

 

 

240.4

 

 

 

269.3

 

 

 

274.3

 

 

Total debt

 

 

54.1

 

 

 

56.7

 

 

 

59.4

 

 

 

63.1

 

 

 

68.1

 

 

Stockholders’ equity

 

 

58.4

 

 

 

58.6

 

 

 

70.0

 

 

 

88.5

 

 

 

88.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow provided by operating activities

 

$

15.8

 

 

$

15.7

 

 

$

31.0

 

 

$

35.0

 

 

$

18.4

 

 

less: capital expenditures, infrastructure projects

 

 

(9.7

)

 

 

(10.8

)

 

 

(9.7

)

 

 

(9.6

)

 

 

(13.3

)

 

less: capital expenditures for DXL stores and acquisition

   of DXL domain name

 

 

(3.7

)

 

 

(2.2

)

 

 

(12.9

)

 

 

(19.6

)

 

 

(20.1

)

 

Free cash flow (Non-GAAP measure)(6)

 

$

2.4

 

 

$

2.8

 

 

$

8.4

 

 

$

5.8

 

 

$

(15.0

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comparable sales percentage

 

 

0.1

%

 

 

3.0

%

 

 

0.9

%

 

 

0.6

%

 

 

4.8

%

 

Gross profit margins

 

 

43.1

%

 

 

44.6

%

 

 

45.0

%

 

 

45.5

%

 

 

46.1

%

 

EBITDA (Non-GAAP measure)(6)

 

$

20.2

 

 

$

18.5

 

 

$

13.0

 

 

$

31.2

 

 

$

23.2

 

 

EBITDA, adjusted for impairment of assets and CEO and restructuring charges and exit costs  associated with London operations  ("Adjusted EBITDA") (Non-GAAP)(6)

 

$

23.5

 

 

$

27.4

 

 

$

17.1

 

 

$

31.6

 

 

$

23.2

 

 

Adjusted EBITDA margin (Non-GAAP measure) (6)

 

 

5.0

%

 

 

5.8

%

 

 

3.7

%

 

 

7.0

%

 

 

5.2

%

 

Operating margin

 

 

(0.9

%)

 

 

(2.1

%)

 

 

(3.9

%)

 

 

0.2

%

 

 

(1.2

%)

 

Number of stores open at fiscal year end

 

 

323

 

 

 

332

 

 

 

342

 

 

 

343

 

 

 

345

 

 

 

 

23


 

 

(1)

Our fiscal year is a 52- or 53- week period ending on the Saturday closest to January 31. Fiscal 2017 was a 53-week period; all other fiscal years were 52-weeks. Certain columns may not foot due to rounding.

(2)

In connection with its CEO search and CEO transition, the Company incurred a charge of $0.7 million and $2.4 million, respectively, in fiscal 2019 and fiscal 2018.  In addition, in fiscal 2018, the Company recorded a charge of $1.9 million related to the Company’s corporate restructuring in May 2018.  See Notes L and M to the Notes to the Consolidated Financial Statements.

(3)

In the third quarter of fiscal 2019, the Company closed its London Rochester Clothing store and recorded a charge of $1.7 million.  Approximately $0.8 million of the charge related to the recognition of the accumulated currency translation adjustment. See Note N to the Consolidated Financial Statements.

(4)

The impairment charges relate to the write-down of right-of-use assets and property and equipment, related to stores where the carrying value exceeds fair value. Fiscal 2018 also includes the write-off of the Company’s “Rochester” trademark of $1.5 million.  Fiscal 2017 also includes the write-off of $1.9 million for technology projects, which were abandoned in fiscal 2017.  See Note A to the Notes to the Consolidated Financial Statements.

(5)

In the fourth quarter of fiscal 2017, as a result of the elimination of the corporate alternative minimum tax (“AMT”) and the ability to receive a refund for our AMT credit, we recognized an income tax benefit of $2.1 million, associated with reversing the corresponding valuation allowance against this asset. See Note F to the Notes to the Consolidated Financial Statements.

(6)

“EBITDA,” “Adjusted EBITDA,” “Adjusted EBITDA margin” and “Free cash flow” are non-GAAP measures.  See “Non-GAAP Reconciliations” in Item 7. “Management’s Discussion and Analysis” for information on these non-GAAP measures and reconciliations to comparable GAAP measures, with the exception of Adjusted EBITDA margin, which is calculated by taking Adjusted EBITDA and dividing it by Sales.

 

 

 

 

24


 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD LOOKING STATEMENTS

As noted above in Part 1, this Annual Report, including, without limitation, this Item 7, contains “forward-looking statements,” including forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results or developments could differ materially from those projected in such statements because of numerous factors, including, without limitation those risks and uncertainties set forth in Item 1A, Risk Factors, which you are encouraged to read. The following discussion and analysis of our financial condition and results of operations should be read in light of those risks and uncertainties and in conjunction with our accompanying Consolidated Financial Statements and Notes thereto.

Certain figures discussed below may not foot due to rounding.

Segment Reporting

The Company has historically had two principal operating segments: its stores and direct businesses.  The Company considers these two operating segments to be similar in terms of economic characteristics, production processes and operations, and have therefore aggregated them into one reportable segment, retail segment, consistent with its omni-channel business approach.  In fiscal 2018, the Company launched a wholesale segment, which the Company considers a third operating segment.  However, due to the immateriality of the wholesale segment’s revenues, profits and assets, its operating results have been aggregated with the retail segment for all periods.

Comparable Sales and E-Commerce (Direct) Sales Definition

Total comparable sales include our stores that have been open for at least 13 months and our direct business.  Stores that have been remodeled, rebranded or re-located during the period are also included in our determination of comparable sales. Stores that have been expanded by more than 25% are considered non-comparable for the first 13 months.  If a store becomes a clearance center, it is also removed from the calculation of comparable sales.  Our Rochester stores, which were closed in fiscal 2019, were excluded from our comparable sales for 6 months prior to store closure as each store liquidated its inventory.  The method of calculating comparable sales varies across the retail industry and, as a result, our calculation of comparable sales is not necessarily comparable to similarly titled measures reported by other retailers.  Sales from our wholesale business are not part of the Company’s comparable sales calculation.

Our customer’s shopping experience continues to evolve across multiple channels and we are continually changing to meet his needs.  The majority of our stores have the capability of fulfilling online orders if merchandise is not available in the warehouse.  As a result, we continue to see more transactions that begin online but are ultimately completed at the store level.  Similarly, if a customer visits a store and the item is out of stock, the associate can order the item through our website.  A customer also has the ability to order online and pick-up in a store.  Because this omni-channel approach to retailing is changing the boundaries of where a sale originates and where a sale is ultimately settled, we do not report comparable sales separately for our stores and direct business.  However, as we continue to invest in building our e-commerce platform, bringing a heightened digital focus to our Company, additional disclosure on our e-commerce growth as it relates to our current initiatives is important.  We define store sales as sales that originate and are fulfilled directly at the store level.  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.

Non-GAAP Measures

We monitor certain non-GAAP financial measures on a regular basis in order to track the progress of our business. These measures include adjusted net loss, adjusted net loss per diluted share, free cash flow, EBITDA and adjusted EBITDA.  We believe these measures provide helpful information with respect to the Company’s operating performance and that the inclusion of these non-GAAP measures is important to assist investors in comparing our performance in fiscal 2019 to fiscal 2018 and fiscal 2017.  We also provide certain forward-looking information with respect to certain of these non-GAAP financial measures. However, these measures may not be comparable to similar measures used by other companies 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 in accordance with GAAP.  See “Non-GAAP Reconciliations” below for additional information on these non-GAAP financial measures and reconciliations to comparable GAAP measures.

 

25


 

EXECUTIVE OVERVIEW

 

 

 

Fiscal 2019

 

 

Fiscal 2018

 

 

Fiscal 2017

 

 

 

(in millions, except for per share data)

 

Net loss

 

$

(7.8

)

 

$

(13.5

)

 

$

(18.8

)

Adjusted net loss (1)

 

 

(3.2

)

 

 

(3.5

)

 

 

(12.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

 

20.2

 

 

 

18.5

 

 

 

13.0

 

Adjusted EBITDA (1)

 

 

23.5

 

 

 

27.4

 

 

 

17.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairment charges

 

 

0.9

 

 

 

4.6

 

 

 

4.1

 

Exit costs associated with London operations

 

 

1.7

 

 

 

 

 

 

 

CEO transition costs

 

 

0.7

 

 

 

2.4

 

 

 

 

Corporate restructuring

 

 

 

 

 

1.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(0.16

)

 

$

(0.28

)

 

$

(0.39

)

Adjusted net loss

 

$

(0.06

)

 

$

(0.07

)

 

$

(0.26

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow from operating activities

 

$

15.8

 

 

$

15.7

 

 

$

31.0

 

Free cash flow

 

$

2.4

 

 

$

2.8

 

 

$

8.4

 

(1)

Adjusted net loss and adjusted EBITDA exclude impairment charges, exits costs associated with London operations, corporate restructuring and CEO transition costs.  Adjusted net loss, for all periods, assumes a normalized tax benefit of 26%. See “Non-GAAP Reconciliations” below.

 

Our net loss for fiscal 2019 was $(0.16) per diluted share as compared to a net loss of $(0.28) per diluted share in fiscal 2018.  On a non-GAAP basis, our results improved to an adjusted net loss of $(0.06) per diluted share in fiscal 2019 as compared to $(0.07) per diluted share in fiscal 2018.

Sales growth for fiscal 2019 was driven by our wholesale business and a 0.1% annual comparable sales increase in our retail segment.  This growth was partially offset by a decrease in store sales from a decline in traffic as well as from the closing of our Rochester Clothing stores.  For fiscal 2019, total sales increased 0.1% to $474.0 million from $473.8 million in fiscal 2018.

Sales from our wholesale business, which we launched in the fourth quarter of last year, were $12.5 million in fiscal 2019 as compared to $2.8 million in fiscal 2018.  We are taking the development of this business slowly, ensuring that we have the infrastructure and processes in place to support future growth.  Gross margins for our wholesale business also improved over the course of the year as we were able to renegotiate certain pricing and improve the efficiency of our processes.  The product reviews of our wholesale merchandise have been strong and we expect our wholesale business will continue to grow.

We were also pleased with the growth in our direct business this year, which represented 23.1% of our retail business, as compared to 21.6% in fiscal 2018.  We made several enhancements this year, which improved our website’s performance, and we are continuing to make changes to our digital advertising, which resulted in increased traffic to our website.  While our stores had positive conversion rates during fiscal 2019, the decline in store traffic and the closure of our Rochester Clothing stores were the primary reasons why we saw a decrease in store sales.  

In fiscal 2018, we tested the rebranding of three Casual Male XL stores to DXL stores.  Rebranding of these stores requires substantially less capital than new real estate and provides us an opportunity to stay in a geographical market without the buildout costs.  Based on the strong sales performance of those three stores, during fiscal 2019 we rebranded another 14 Casual Male XL retail and outlet stores to DXL retail and outlet stores.  These rebranded stores performed well in fiscal 2019 with average comparable sales increases in excess of 20% in their first year of operation and without the level of depreciation associated with new DXL stores.  We expect, based on the strong returns in these stores, that we will rebrand, where possible, many of the remaining Casual Male XL retail and outlet stores.

Although our total sales were less than expected during fiscal 2019, we effectively managed our gross margin and reduced our selling, general and administrative (SG&A) expenses, which contributed to our improved operating results.

We have started to realize operating leverage from the closure of our Rochester Clothing stores.  In March 2019, we closed our Rochester Clothing stores in Washington DC and Miami, Florida.  In September 2019, we closed our store in London.  Finally, in January 2020, we closed our last two remaining Rochester Clothing stores in Beverly Hills, CA and New York, NY.  Our consolidated sales results were negatively impacted by the closure of these five stores in fiscal 2019 and will continue to be impacted throughout fiscal 2020.  However, the closure of these stores will create operating leverage in occupancy costs and selling, general and

 

26


 

administrative expenses in the coming year.  Our Rochester stores generated in excess of $12 million dollars in sales annually, but in aggregate, generated an operating loss.  While we do expect to lose some of our Rochester customers from these store closures, including exiting our London operations, we believe this decision will be beneficial to our long-term profitability. We started to see the benefit from cost savings in the fourth quarter from the closure of these stores.   

From a liquidity perspective, our cash flow from operations were $15.8 million as compared to $15.7 million in fiscal 2018.  After capital expenditures, our free cash flow for fiscal 2019 was $2.4 million as compared to $2.8 million in the prior year.  Our free cash flow for fiscal 2019 was used to pay down our debt levels. We ended fiscal 2019 in a solid liquidity position, with inventory down $4.4 million to $102.4 million, clearance inventory at 10.0% from 10.3% last year, total debt down $2.6 million to $54.1 million and increased availability under our Credit Facility up $2.9 million to $48.5 million at February 1, 2020.  

Financial Outlook

Due to the rapidly changing environment with COVID-19, we are not providing specific sales, earnings, or cash flow guidance for fiscal 2020.  We have temporarily closed all of our retail stores as of March 17, 2020 and expect the stores to remain closed through at least March 28, 2020.  We are evaluating potential business scenarios and are currently taking actions, which include reducing operating expenses, reducing capital expenditures, and reducing inventory purchases while remaining focused on liquidity preservation.  We expect to provide a more detailed outlook on our fiscal 2020 operating strategies after the impact on business from COVID-19 has stabilized.

RESULTS OF OPERATIONS

Our fiscal year is a 52- or 53-week period ending on the Saturday closest to January 31. Fiscal 2019 and fiscal 2018 were 52-week periods and fiscal 2017 was a 53-week year.

Below is a discussion of our results of operations for fiscal 2019 as compared to fiscal 2018.

Our Annual Report on Form 10-K for the year ended February 2, 2019 (fiscal 2018) includes a discussion and analysis of our financial condition and results of operations comparing fiscal 2018 to fiscal 2017 in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

SALES

 

 

 

Fiscal year

 

(in millions)

 

2019

 

Fiscal 2018 sales

 

$

473.8

 

Less prior year sales for stores that have closed

 

 

(8.7

)

 

 

$

465.1

 

 

 

 

 

 

Increase in comparable sales

 

 

0.3

 

Non-comparable sales

 

 

0.4

 

Wholesale revenues

 

 

9.7

 

Other, net

 

 

(1.5

)

Fiscal 2019 sales

 

$

474.0

 

 

For fiscal 2019, total sales increased 0.1% to $474.0 million from $473.8 million in fiscal 2018. Comparable sales for the full year increased by 0.1%. The increase in sales of $0.2 million was driven by an increase in wholesale revenue of $9.7 million, comparable sales of $0.3 million and non-comparable sales of $0.4 million.  These increases were partially offset by sales from closed stores of $8.7 million and a decrease in other revenue, primarily related to alteration income, of $1.5 million.  Our direct business continued to grow, representing 23.1% of our retail segment in fiscal 2019 as compared to 21.6% in fiscal 2018.

GROSS MARGIN

Gross margin rate for fiscal 2019 was 43.1% compared to 44.6% in fiscal 2018. The decrease of 150 basis points was due to a decrease in merchandise margin of 200 basis points, partially offset by a decrease in occupancy costs as a percentage of sales of 50 basis points.  

The 200 basis point decrease in merchandise margin was largely due to a decrease of approximately 100 basis points related to increased clearance selling and promotional activity as well as a shift to more branded apparel and approximately 80 basis points was

 

27


 

due to the growth of our wholesale segment, which by its nature has lower merchandise margins than our retail business.  The balance of the decrease was due to the write-off of certain aged-inventory in the third quarter of fiscal 2019 of approximately 20 basis points.

In the third quarter of fiscal 2019, we made a change to our inventory aging policy, principally driven by a noticeable shift away from tailored clothing to sportswear.  As such, we recorded a charge of $0.9 million at that time in connection with this change in policy to write-off certain aged inventory.  The $0.9 million charge represented approximately 0.8% of our total inventory cost.  

By its nature, gross margin rates for wholesale are considerably lower than gross margin rates for the Company’s retail segment.  Therefore, if we achieve top-line growth in our wholesale business, we expect to experience a decline in our gross margin rate on a combined basis. On a stand-alone basis, however, we saw improvements in margins from our wholesale business each quarter since the fourth quarter of fiscal 2018.

The improvement in our occupancy rate of 50 basis points was mainly due to closed stores.  On a dollar basis, occupancy costs for fiscal 2019 decreased 3.2% as compared to fiscal 2018.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A expenses as a percentage of sales for fiscal 2019 was 38.1% as compared to 38.8% for fiscal 2018.

SG&A expenses for fiscal 2019 decreased $3.2 million, or 1.7%, to $180.7 million as compared to $183.9 million in fiscal 2018.  The decrease was primarily due to reduced payroll costs and incentive accruals of approximately $3.5 million and a decrease in marketing costs of $1.5 million.  These decreases were partially offset by an increase in expenses of $0.6 million related to our wholesale segment and $1.5 million in deferred gain recognized in fiscal 2018 related to our sale-leaseback transaction.  As a result of adopting the new lease accounting standard (ASC 842) at the beginning of fiscal 2019, we are no longer receiving the annual benefit of $1.5 million from the amortization of the deferred gain from our sale-leaseback transaction.  

SG&A expenses are managed 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 22.6% of sales in fiscal 2019 as compared to 23.2% of sales in fiscal 2018.  Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 15.5% of sales in fiscal 2019 compared to 15.6% of sales in fiscal 2018.  We expect to continue to address our SG&A cost structure to improve our EBITDA margins and overall profitability.

EXIT COSTS ASSOCIATED WITH LONDON OPERATIONS

During the third quarter of fiscal 2019, we closed our Rochester Clothing store located in London, England.  In connection with this store closure, we incurred a charge of $1.7 million, which included a non-cash expense of $0.8 million related to the recognition of the accumulated foreign currency translation adjustment.  The remainder of the charge primarily related to lease termination and inventory liquidation costs.

CORPORATE RESTRUCTURING

Results for fiscal 2018 include a charge of $1.9 million in connection with the Company’s corporate restructuring in May 2018.  In connection with that corporate restructuring, we eliminated 56 positions, which represented approximately 15% of our corporate work force, or 2% of our total work force.  Of the 56 positions, 36 positions were terminations and 20 positions were open positions that were not filled.  Approximately $1.6 million of the $1.9 million was cash expenditures.

As a result of that restructuring, as noted above, we realized savings of approximately $6.0 million in SG&A expenses in fiscal 2018 and $10.0 million, on an annualized basis.  

CEO TRANSITION COSTS

In connection with David Levin’s retirement and the appointment of Harvey Kanter as the Company’s President and Chief Executive Officer, the Company has incurred certain transition costs in fiscal 2018 and fiscal 2019.  The Company and Mr. Levin entered into a Transition Agreement dated March 20, 2018, as amended (the “Transition Agreement”) that detailed Mr. Levin’s future retirement and related successor issues.  Mr. Levin resigned as an officer and director of the Company on January 1, 2019.  Under the Transition Agreement, he was entitled to receive his base salary, AIP bonus and LTIP compensation through December 31, 2019.  Because no successor was appointed as of December 31, 2018, the Company and Mr. Levin entered into a Letter Agreement, whereby Mr. Levin served as Acting CEO until April 1, 2019 when Mr. Kanter assumed the position of President and Chief Executive Officer of the Company.

 

28


 

In connection with the CEO transition, the Company incurred a total charge of approximately $2.4 million in fiscal 2018.  The $2.4 million charge related to amounts payable to Mr. Levin under his Transition Agreement, CEO search costs and the acceleration of stock-based compensation of approximately $0.5 million, related to his time-based equity awards.  In fiscal 2019, the Company incurred additional charges of approximately $0.7 million for CEO search costs, Acting CEO consulting costs, fiscal 2019 incentive payout to Mr. Levin, housing allowance and legal fees.  

In accordance with the terms of the transition agreement between the Company and Mr. Levin, the Company is accruing, based on management’s current estimates, future cash payments that Mr. Levin will be entitled to under the 2018-2020 LTIP, if and when such targets are achieved.

IMPAIRMENT OF ASSETS

We recorded asset impairment charges of $0.9 million and $4.6 million for fiscal 2019 and fiscal 2018, respectively.  The impairment charges primarily related to the write-down of long-lived assets and right-of-use assets related to stores, where the carrying value exceed fair value.  Included in the $4.6 million impairment charge in fiscal 2018 was the write-off of the “Rochester” trademark for $1.5 million.  In the fourth quarter of fiscal 2018, we made the decision to close our five remaining Rochester Clothing stores during fiscal 2019.  While we will continue to sell Rochester-branded merchandise in our DXL stores and website, we determined that, without the cash flows from these five Rochester branded retail locations, the “Rochester” trademark was fully impaired.    

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense was $24.6 million in fiscal 2019 compared to $28.7 million for fiscal 2018. With the majority of our new store growth complete, our depreciation expense is decreasing.

Included in depreciation and amortization for fiscal 2018 was the amortization of our “Casual Male” trademark of $0.3 million.  The “Casual Male” trademark was fully amortized at the end of fiscal 2018.

INTEREST EXPENSE, NET

Net interest expense for fiscal 2019 was $3.3 million as compared to $3.5 million for fiscal 2018.  Average borrowing during fiscal 2019 increased slightly as compared to fiscal 2018, but interest expense decreased slightly due to favorable rates and lower debt-related expenses.  Although average borrowings were higher in fiscal 2019 as compared to fiscal 2018, total debt at February 1, 2020 decreased $2.7 million from February 2, 2019.

See “Liquidity and Capital Resources” below for more discussion regarding our credit facility and term loan as well as our future liquidity needs.

INCOME TAXES

Pursuant to accounting rules, realization of our deferred tax assets, which relate principally to federal net operating loss carryforwards expiring from fiscal 2022 through fiscal 2036, is dependent on generating sufficient taxable income in the near term.

At the end of fiscal 2013, we entered a three-year cumulative loss and based on all positive and negative evidence at February 1, 2014, we established a full valuation allowance against our net deferred tax assets.  While we expect to return to profitability, generate taxable income and ultimately emerge from a three-year cumulative loss, based on our results for fiscal 2019 and our forecast for fiscal 2020, we believe that a full valuation allowance remains appropriate at this time.  

The discrete tax rate method was used for calculating tax expense. Due to current period losses, our current tax provision for fiscal 2019 and fiscal 2018 was primarily due to current state margin tax, based on gross receipts less certain deductions.  Our tax benefit for fiscal 2018 also included of an income tax benefit of $0.2 million for the recognition of the remaining portion of the AMT that was previously sequestered. See Note F, Income Taxes.  

NET LOSS

Net loss for fiscal 2019 was $(7.8) million, or $(0.16) per diluted share, as compared to $(13.5) million, or $(0.28) per diluted share, in fiscal 2018.

 

29


 

Included in our results for fiscal 2019 were charges of $1.7 million, or $0.03 per diluted share, for the exit costs associated with our London operations, $0.7 million, or $0.01 per diluted share, in CEO transition costs and $0.9 million, or $0.02 per diluted share in impairment charges.

Included in our results for fiscal 2018 were charges of $1.9 million, or $0.04 per diluted share, for the corporate restructuring, $2.4 million, or $0.05 per diluted share, in CEO transition costs and $4.6 million, or $0.09 per diluted share, in asset impairment charges.  

On a non-GAAP basis, before asset impairments, exits costs associated with our London operations, CEO transition costs, corporate restructuring and assuming a normalized tax rate of 26% for both years, adjusted net loss per share for fiscal 2019 was $(0.06) per diluted share, compared to $(0.07) per diluted share for fiscal 2018.  See “Non-GAAP Reconciliation” below.  

SEASONALITY

A comparison of sales in each quarter of the past three fiscal years is presented below. The amounts shown are not necessarily indicative of actual trends, because such amounts also reflect the addition of new stores and the remodeling and closing of other stores during these periods. Consistent with the retail apparel industry, our business is seasonal. Generally, the majority of our operating income is generated in the fourth quarter as a result of the impact of the holiday selling season. A comparison of quarterly sales, gross profit, and net loss per share for the past two fiscal years is presented in Note O of the Notes to the Consolidated Financial Statements.

 

(in millions, except percentages)

 

Fiscal 2019

 

 

Fiscal 2018

 

 

Fiscal 2017

 

First quarter

 

$

113.0

 

 

 

23.8

%

 

$

113.3

 

 

 

23.9

%

 

$

107.6

 

 

 

23.0

%

Second quarter

 

 

123.2

 

 

 

26.0

%

 

 

122.2

 

 

 

25.8

%

 

 

121.1

 

 

 

25.9

%

Third quarter

 

 

106.6

 

 

 

22.5

%

 

 

107.1

 

 

 

22.1

%

 

 

103.7

 

 

 

22.1

%

Fourth quarter

 

 

131.2

 

 

 

27.7

%

 

 

131.2

 

 

 

27.7

%

 

 

135.6

 

 

 

29.0

%

 

 

$

474.0

 

 

 

100.0

%

 

$

473.8

 

 

 

100.0

%

 

$

468.0

 

 

 

100.0

%

 

EFFECTS OF INFLATION

Although our operations are influenced by general economic trends, we do not believe that inflation has had a material effect on the results of our operations in the last three fiscal years.

LIQUIDITY AND CAPITAL RESOURCES

With the recent outbreak of COVID-19, we have deployed a number of contingency plans to reduce operating expenses, reduce capital expenditure spending, and cancel inventory receipts.  Given these actions and our current plan, we believe we have sufficient excess availability under our credit facility to weather the impact of this global event. Our primary sources of liquidity are cash generated from operations and availability under our credit facility with Bank of America, N.A., which was most recently amended in September 2019 (“Credit Facility”). Generally, our current cash needs are primarily for working capital (essentially inventory requirements) and capital expenditures. We plan to manage our working capital and it is expected that excess cash from operations will be directed toward our growth initiatives and debt reductions.  

Our liquidity objective for fiscal 2019 was to generate free cash flow and to reduce outstanding debt levels, which we accomplished. For fiscal 2019, cash flow from operating activities increased by $0.1 million to $15.8 million as compared to $15.7 million.  After capital expenditures, we generated free cash flow of $2.4 million in fiscal 2019 as compared to $2.8 million in fiscal 2018.  The decrease of $0.4 million was driven by an increase of $0.4 million in capital expenditures related to us rebranding a total of 14 Casual Male XL retail and outlet stores during fiscal 2019 as compared to 3 stores in fiscal 2018.  We used our free cash flow to reduce our outstanding debt, which decreased $2.6 million at February 1, 2020 as compared to February 2, 2019.    

The following table sets forth financial data regarding our liquidity position at the end of the past two fiscal years:

 

30


 

 

(in millions)

 

Fiscal 2019

 

 

Fiscal 2018

 

Cash provided by operations