SEC Filing | Destination XL Group, Inc.

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dxlg-10q_20210501.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 1, 2021


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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)	(I.R.S. Employer Identification No.)
555 Turnpike Street Canton, MA	02021
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (781) 828-9300

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


Title of each class	Trading symbol(s)	Name of each exchange on which registered
	DXLG

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 an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 Exchange Act). Yes ☐ No ☒

As of May 14, 2021, the registrant had 63,526,601 shares of common stock, $0.01 par value per share, outstanding.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

DESTINATION XL GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

	May 1, 2021			January 30, 2021
	(Fiscal 2021)			(Fiscal 2020)

ASSETS
Current assets:
Cash and cash equivalents	$	5,843		$	18,997
Accounts receivable		4,671			6,416
Inventories		88,390			85,028
Prepaid expenses and other current assets		6,381			3,689
Total current assets		105,285			114,130

Non-current assets:
Property and equipment, net of accumulated depreciation and amortization		52,591			56,552
Operating lease right-of-use assets		130,061			134,321
Intangible assets		1,150			1,150
Other assets		598			602
Total assets	$	289,685		$	306,755

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt	$	74		$	-
Accounts payable		31,639			27,091
Accrued expenses and other current liabilities		25,450			24,825
Operating leases, current		38,331			43,598
Borrowings under credit facility		33,371			59,521
Total current liabilities		128,865			155,035

Long-term liabilities:
Long-term debt, net of current portion		16,669			14,869
Operating leases, non-current		129,856			135,819
Other long-term liabilities		4,811			5,109
Total long-term liabilities		151,336			155,797

Commitments and contingencies

Stockholders' equity (deficit):
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued		—			—
Common stock, $0.01 par value, 100,000,000 shares authorized, 76,212,032 and 64,656,384 shares issued at May 1, 2021 and January 30, 2021, respectively		762			647
Additional paid-in capital		319,443			314,747
Treasury stock at cost, 12,755,873 shares at May 1, 2021 and January 30, 2021		(92,658	)		(92,658	)
Accumulated deficit		(211,895	)		(220,592	)
Accumulated other comprehensive loss		(6,168	)		(6,221	)
Total stockholders' equity (deficit)		9,484			(4,077	)
Total liabilities and stockholders' equity (deficit)	$	289,685		$	306,755

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

DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	For the Three Months Ended
	May 1, 2021			May 2, 2020
	(Fiscal 2021)			(Fiscal 2020)

Sales	$	111,494		$	57,227
Cost of goods sold including occupancy costs		60,661			44,013
Gross profit		50,833			13,214

Expenses:
Selling, general and administrative		37,118			32,112
Impairment of assets		(652	)		16,335
Depreciation and amortization		4,500			5,732
Total expenses		40,966			54,179

Operating income (loss)		9,867			(40,965	)

Interest expense, net		(1,142	)		(741	)

Income (loss) before provision for income taxes		8,725			(41,706	)
Provision for income taxes		28			20


Net income (loss)	$	8,697		$	(41,726	)


Net income (loss) per share - basic and diluted	$	0.14		$	(0.82	)

Weighted-average number of common shares outstanding:
Basic		62,153			50,758
Diluted		63,000			50,758

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

DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

	For the Three Months Ended
	May 1, 2021			May 2, 2020
	(Fiscal 2021)			(Fiscal 2020)
Net income (loss)	$	8,697		$	(41,726	)

Other comprehensive income before taxes:
Foreign currency translation		(25	)		(34	)
Pension plans		78			242
Other comprehensive income before taxes		53			208
Tax provision related to items of other comprehensive income		—			—
Other comprehensive income, net of tax		53			208
Comprehensive income (loss)	$	8,750		$	(41,518	)

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

DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands)

(Unaudited)

																	Accumulated
					Additional												Other
	Common Stock				Paid-in			Treasury Stock						Accumulated			Comprehensive
	Shares		Amounts		Capital			Shares			Amounts			Deficit			Income (Loss)			Total
Balance at January 30, 2021		64,656	$	647	$	314,747			(12,755	)	$	(92,658	)	$	(220,592	)	$	(6,221	)	$	(4,077	)
Issuance of common stock through private direct offering, net of offering costs		11,111		111		4,264															4,375
Board of directors compensation		137		1		108															109
Stock compensation expense						327															327
Issuance of common stock, upon RSUs release		308		3		(3	)														—
Accumulated other comprehensive income (loss):
Pension plan, net of taxes																		78			78
Foreign currency, net of taxes																		(25	)		(25	)
Net income															8,697						8,697
Balance at May 1, 2021		76,212	$	762	$	319,443			(12,755	)	$	(92,658	)	$	(211,895	)	$	(6,168	)	$	9,484

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

DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)


																	Accumulated
					Additional												Other
	Common Stock				Paid-in			Treasury Stock						Accumulated			Comprehensive
	Shares		Amounts		Capital			Shares			Amounts			Deficit			Income (Loss)			Total
Balance at February 1, 2020		63,297	$	633	$	312,933			(12,755	)	$	(92,658	)	$	(156,054	)	$	(6,431	)	$	58,423
Board of directors compensation		93		1		148															149
Stock compensation expense						452															452
Issuance of common stock, upon RSUs release		437		4		(4	)														—
Deferred stock vested		6		—		—															—
Accumulated other comprehensive income (loss):
Pension plan, net of taxes																		242			242
Foreign currency, net of taxes																		(34	)		(34	)
Net loss															(41,726	)					(41,726	)
Balance at May 2, 2020		63,833	$	638	$	313,529			(12,755	)	$	(92,658	)	$	(197,780	)	$	(6,223	)	$	17,506

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

DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	For the three months ended
	May 1, 2021			May 2, 2020
	(Fiscal 2021)			(Fiscal 2020)
Cash flows from operating activities:
Net income (loss)	$	8,697		$	(41,726	)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Amortization of deferred debt issuance costs		215			35
Impairment of assets		(652	)		16,335
Depreciation and amortization		4,500			5,732
Stock compensation expense		327			452
Board of directors stock compensation		109			149

Changes in operating assets and liabilities:
Accounts receivable		1,745			4,281
Inventories		(3,362	)		(5,905	)
Prepaid expenses and other current assets		(2,692	)		5,920
Other assets		4			606
Accounts payable		4,548			98
Operating leases, net		(6,318	)		(1,327	)
Accrued expenses and other liabilities		644			(1,461	)
Net cash provided by (used for) operating activities		7,765			(16,811	)

Cash flows from investing activities:
Additions to property and equipment, net		(803	)		(1,590	)
Net cash used for investing activities		(803	)		(1,590	)

Cash flows from financing activities:
Proceeds from issuance of common stock from private direct offering, net of offering costs		4,375			—
Repayment of existing FILO loan		(15,000	)		—
Proceeds from new FILO loan		17,500			—
Net borrowings (repayments) under credit facility		(26,173	)		40,214
Debt issuance costs		(818	)		(4	)
Net cash provided by (used for) financing activities		(20,116	)		40,210
Net increase (decrease) in cash and cash equivalents		(13,154	)		21,809
Cash and cash equivalents:
Beginning of period		18,997			4,338
End of period	$	5,843		$	26,147

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

DESTINATION XL GROUP, INC.

Notes to Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

In the opinion of management of Destination XL Group, Inc., a Delaware corporation (collectively with its subsidiaries, referred to as the “Company”), the accompanying unaudited Consolidated Financial Statements contain all adjustments necessary for a fair presentation of the interim financial statements. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with the notes to the Company’s audited Consolidated Financial Statements for the fiscal year ended January 30, 2021 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 19, 2021.

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

The Company’s fiscal year is a 52- or 53- week period ending on the Saturday closest to January 31. Fiscal 2021 and fiscal 2020 are 52-week periods ending on January 29, 2022 and January 30, 2021, respectively.

COVID-19 Pandemic and its impact on results and comparability of financial statements

On March 11, 2020, the World Health Organization declared the current outbreak of a novel coronavirus disease (“COVID-19”) as a global pandemic. The COVID-19 pandemic had an adverse effect on the Company’s operations during fiscal 2020. All of the Company’s store locations were closed temporarily on March 17, 2020 and the majority of the Company’s workforce was furloughed in March 2020. The Company began reopening stores in late April and by the end of June 2020 all retail stores had been reopened but the majority with reduced operating hours. In March 2020, as a proactive measure, the Company drew $30.0 million under its revolving facility in order to increase the Company’s cash position and preserve financial flexibility. During the second quarter of fiscal 2020, the Company entered into rent concessions with the majority of its landlords, in the form of rent abatements, rent deferments and, to a lesser extent, lease term extensions. As a result of the impact of the pandemic on our business in fiscal 2020, including the closure of all of our stores in the first quarter of fiscal 2020, results for the first quarter fiscal of 2021 may not be comparable to the results for the first quarter of fiscal 2020.

While vaccines are being widely distributed and many areas where our stores are located are beginning to re-open with limited or no restrictions, the duration of the COVID-19 pandemic and its variants remain uncertain and could continue to have a material adverse impact on the Company’s results of operations, financial condition and cash flows.

Segment Information

The Company has three principal operating segments: its stores, direct and wholesale businesses. The Company considers its stores and direct operating segments to be similar in terms of economic characteristics, production processes and operations, and has therefore aggregated them into one reportable segment, retail segment, consistent with its omni-channel business approach. Due to the immateriality of the wholesale segment’s revenues, profits and assets, its operating results are aggregated with the retail segment for both periods.

Intangibles

In fiscal 2018, the Company purchased the rights to the domain name “dxl.com.” The domain name has a carrying value of $1.2 million and is considered an indefinite-lived asset. During the first three months ended May 1, 2021, no event or circumstance occurred which would cause a reduction in the fair value of this intangible asset.

Fair Value of Financial Instruments

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

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

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

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

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

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

The fair value of long-term debt is classified within Level 2 of the valuation hierarchy. At May 1, 2021, the fair value approximated the carrying amount based upon terms available to the Company for borrowings with similar arrangements and remaining maturities.

The fair value of the “dxl.com” domain name, an indefinite-lived asset, is measured on a non-recurring basis in connection with the Company’s annual impairment test and is classified within Level 3 of the valuation hierarchy. See Intangibles above.

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

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

Other comprehensive income (loss) includes amounts related to foreign currency and pension plans and is reported in the Consolidated Statements of Comprehensive Income (Loss). Other comprehensive income (loss) and reclassifications from AOCI for the three months ended May 1, 2021 and May 2, 2020, respectively, were as follows:

May 1, 2021

May 2, 2020

For the three months ended:

(in thousands)

Pension

Plans

Foreign

Currency

Total