10-Q
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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 4, 2024

OR

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

Common Stock, $0.01 par value

DXLG

The Nasdaq Stock Market LLC

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.

 

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

As of May 15, 2024, the registrant had 58,228,053 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 4, 2024

 

 

February 3, 2024

 

 

 

(Fiscal 2024)

 

 

(Fiscal 2023)

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

16,328

 

 

$

27,590

 

Short-term investments

 

 

36,891

 

 

 

32,459

 

Accounts receivable

 

 

881

 

 

 

3,920

 

Inventories

 

 

91,238

 

 

 

80,968

 

Prepaid expenses and other current assets

 

 

9,557

 

 

 

8,308

 

Total current assets

 

 

154,895

 

 

 

153,245

 

 

 

 

 

 

 

 

Non-current assets:

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation and amortization

 

 

44,325

 

 

 

43,238

 

Operating lease right-of-use assets

 

 

155,591

 

 

 

138,118

 

Deferred income taxes, net of valuation allowance

 

 

20,181

 

 

 

21,533

 

Intangible assets

 

 

1,150

 

 

 

1,150

 

Other assets

 

 

485

 

 

 

457

 

Total assets

 

$

376,627

 

 

$

357,741

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

28,483

 

 

$

17,353

 

Accrued expenses and other current liabilities

 

 

23,827

 

 

 

35,302

 

Operating leases, current

 

 

34,644

 

 

 

37,221

 

Total current liabilities

 

 

86,954

 

 

 

89,876

 

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

 

Operating leases, non-current

 

 

134,583

 

 

 

117,316

 

Other long-term liabilities

 

 

1,540

 

 

 

1,596

 

Total long-term liabilities

 

 

136,123

 

 

 

118,912

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued

 

 

 

 

 

 

Common stock, $0.01 par value, 125,000,000 shares authorized, 79,299,215 and 79,033,378 shares issued at May 4, 2024 and February 3, 2024, respectively

 

 

793

 

 

 

790

 

Additional paid-in capital

 

 

326,214

 

 

 

325,202

 

Treasury stock at cost, 21,094,463 shares at May 4, 2024 and 21,041,661 shares at February 3, 2024

 

 

(130,348

)

 

 

(130,137

)

Accumulated deficit

 

 

(43,109

)

 

 

(46,902

)

Total stockholders' equity

 

 

153,550

 

 

 

148,953

 

Total liabilities and stockholders' equity

 

$

376,627

 

 

$

357,741

 

 

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

 

2


 

DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

 

May 4, 2024

 

 

April 29, 2023

 

 

 

 

(Fiscal 2024)

 

 

(Fiscal 2023)

 

 

 

 

 

Sales

 

$

115,489

 

 

$

125,442

 

 

Cost of goods sold including occupancy costs

 

 

59,807

 

 

 

64,526

 

 

Gross profit

 

 

55,682

 

 

 

60,916

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

Selling, general and administrative

 

 

47,523

 

 

 

48,281

 

 

Depreciation and amortization

 

 

3,278

 

 

 

3,477

 

 

Total expenses

 

 

50,801

 

 

 

51,758

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

4,881

 

 

 

9,158

 

 

 

 

 

 

 

 

 

 

Interest income, net

 

 

570

 

 

 

339

 

 

 

 

 

 

 

 

 

 

Income before provision for income taxes

 

 

5,451

 

 

 

9,497

 

 

Provision for income taxes

 

 

1,658

 

 

 

2,530

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

3,793

 

 

$

6,967

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share - basic

 

$

0.07

 

 

$

0.11

 

 

Net income per share - diluted

 

$

0.06

 

 

$

0.11

 

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding:

 

 

 

 

 

 

 

Basic

 

 

58,036

 

 

 

62,690

 

 

Diluted

 

 

60,963

 

 

 

66,316

 

 

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

 

3


 

DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

For the Three Months Ended

 

 

 

 

May 4, 2024

 

 

April 29, 2023

 

 

 

 

(Fiscal 2024)

 

 

(Fiscal 2023)

 

 

Net income

 

$

3,793

 

 

$

6,967

 

 

 

 

 

 

 

 

 

 

Other comprehensive income before taxes:

 

 

 

 

 

 

 

Retirement plans

 

 

 

 

 

66

 

 

Other comprehensive income before taxes

 

 

 

 

 

66

 

 

Tax effect related to items of other comprehensive income

 

 

 

 

 

(17

)

 

Other comprehensive income, net of tax

 

 

 

 

 

49

 

 

Comprehensive income

 

$

3,793

 

 

$

7,016

 

 

 

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

 

4


 

 

 

DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Treasury Stock

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amounts

 

 

Capital

 

 

Shares

 

 

Amounts

 

 

Deficit

 

 

Total

 

Balance at February 3, 2024

 

 

79,033

 

 

$

790

 

 

$

325,202

 

 

 

(21,041

)

 

$

(130,137

)

 

$

(46,902

)

 

$

148,953

 

Board of directors' compensation

 

 

18

 

 

 

1

 

 

 

111

 

 

 

 

 

 

 

 

 

 

 

 

112

 

Stock compensation expense

 

 

 

 

 

 

 

 

875

 

 

 

 

 

 

 

 

 

 

 

 

875

 

Issuance of common stock, upon RSUs release

 

 

129

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

Shares withheld for taxes related to net share settlement

 

 

(14

)

 

 

 

 

 

(48

)

 

 

 

 

 

 

 

 

 

 

 

(48

)

Exercise of stock options

 

 

132

 

 

 

1

 

 

 

75

 

 

 

 

 

 

 

 

 

 

 

 

76

 

Repurchase of common stock

 

 

 

 

 

 

 

 

 

 

 

(53

)

 

 

(211

)

 

 

 

 

 

(211

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,793

 

 

 

3,793

 

Balance at May 4, 2024

 

 

79,298

 

 

$

793

 

 

$

326,214

 

 

 

(21,094

)

 

$

(130,348

)

 

$

(43,109

)

 

$

153,550

 

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

 

5


 

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

 

 

Loss

 

 

Total

 

Balance at January 28, 2023

 

 

78,230

 

 

$

782

 

 

$

321,516

 

 

 

(15,625

)

 

$

(105,386

)

 

$

(74,756

)

 

$

(4,928

)

 

$

137,228

 

Board of directors' compensation

 

 

15

 

 

 

 

 

 

108

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

108

 

Stock compensation expense

 

 

 

 

 

 

 

 

404

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

404

 

Restricted stock units (RSUs) granted for achievement of performance-based
compensation, reclassified from liability to equity

 

 

 

 

 

 

 

 

1,146

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,146

 

Issuance of common stock, upon RSUs release

 

 

251

 

 

 

3

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares withheld for taxes related to net share settlement

 

 

(81

)

 

 

(1

)

 

 

(445

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(446

)

Exercise of stock options

 

 

81

 

 

 

1

 

 

 

215

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

216

 

Other comprehensive income, net of taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

49

 

 

 

49

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,967

 

 

 

 

 

 

6,967

 

Balance at April 29, 2023

 

 

78,496

 

 

$

785

 

 

$

322,941

 

 

 

(15,625

)

 

$

(105,386

)

 

$

(67,789

)

 

$

(4,879

)

 

$

145,672

 

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

 

6


 

DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

May 4, 2024

 

 

April 29, 2023

 

 

 

(Fiscal 2024)

 

 

(Fiscal 2023)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

3,793

 

 

$

6,967

 

Adjustments to reconcile net income to net cash used for operating activities:

 

 

 

 

 

 

Amortization of deferred debt issuance costs

 

 

19

 

 

 

19

 

Gain from the sale of equipment

 

 

(4

)

 

 

(96

)

Depreciation and amortization

 

 

3,278

 

 

 

3,477

 

Deferred taxes, net of valuation allowance

 

 

1,352

 

 

 

2,383

 

Stock compensation expense

 

 

875

 

 

 

404

 

Board of directors' stock compensation

 

 

112

 

 

 

108

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

2,702

 

 

 

534

 

Inventories

 

 

(10,270

)

 

 

(7,254

)

Prepaid expenses and other current assets

 

 

(1,249

)

 

 

(495

)

Other assets

 

 

(47

)

 

 

(5

)

Accounts payable

 

 

11,130

 

 

 

(1,669

)

Operating leases, net

 

 

(2,783

)

 

 

(1,950

)

Accrued expenses and other liabilities

 

 

(10,033

)

 

 

(6,657

)

Net cash used for operating activities

 

 

(1,125

)

 

 

(4,234

)

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Additions to property and equipment, net

 

 

(5,863

)

 

 

(1,709

)

Proceeds from sale of equipment

 

 

4

 

 

 

96

 

Purchase of short-term investments

 

 

(10,003

)

 

 

(16,064

)

Maturity of short-term investments

 

 

5,908

 

 

 

 

Net cash used for investing activities

 

 

(9,954

)

 

 

(17,677

)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Repurchase of common stock

 

 

(211

)

 

 

 

Tax withholdings paid related to net share settlements

 

 

(48

)

 

 

(446

)

Proceeds from the exercise of stock options

 

 

76

 

 

 

216

 

Net cash used for financing activities

 

 

(183

)

 

 

(230

)

Net decrease in cash and cash equivalents

 

 

(11,262

)

 

 

(22,141

)

Cash and cash equivalents:

 

 

 

 

 

 

Beginning of period

 

 

27,590

 

 

 

52,074

 

End of period

 

$

16,328

 

 

$

29,933

 

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

 

Cash paid during the period for income taxes

 

$

104

 

 

 

 

Cash paid during the period for interest

 

$

90

 

 

$

62

 

Non-cash activity during the period:

 

 

 

 

 

 

Capital expenditures incurred but not yet paid

 

$

841

 

 

$

126

 

 

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

 

7


 

 

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 February 3, 2024 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 21, 2024.

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 2024 is a 52-week period ending on February 1, 2025 and fiscal 2023 was a 53-week period ending on February 3, 2024.

Segment Information

The Company has two principal operating segments: its stores and its direct business. 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.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash in banks and short-term investments, which have a maturity of ninety days or less when acquired. Included in cash equivalents are credit card and debit card receivables from banks, which generally settle within two to four business days.

Short-Term Investments

Short-term investments consist of those investments that have a maturity date, when acquired, that is greater than three months and twelve months or less. These investments are classified as held-to-maturity and are carried at amortized cost, which approximates fair value due to the short period between purchase and maturity.

Concentration of Credit Risk

Cash and cash equivalents include amounts due from third party financial institutions, which from time to time, may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company is potentially exposed to a concentration of credit risk when cash and cash equivalent deposits in these financial institutions are in excess of FDIC limits. The Company considers the credit risk associated with these financial instruments to be minimal as cash and cash equivalents are held by financial institutions with high credit ratings and it has not historically sustained any credit losses associated with its cash and cash equivalents balances. In addition, the Company's cash and cash equivalents include money market accounts with Citizens Bank, N.A. and investments in U.S. government-backed securities held with Fidelity Investments.

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.

8


 

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 carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short maturity of these instruments. See Note 9 - Fair Value Measurement for information regarding the fair value of certain financial assets.

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

In the fourth quarter of fiscal 2023, the Company terminated its frozen retirement plans, which was the only AOCI activity. As a result, there is no remaining AOCI as of February 3, 2024.

For the first three months of fiscal 2023, other comprehensive income and reclassifications from AOCI was as follows:

 

 

 

April 29, 2023

For the three months ended:

 

(in thousands)

 

 

Retirement
Plans

 

 

Balance at beginning of the quarter

 

$

(4,928

)

 

 

 

 

 

 

Other comprehensive income before
   reclassifications, net of taxes

 

 

6

 

 

 

 

 

 

 

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

 

 

43

 

 

 

 

 

 

 

Other comprehensive income for the period

 

 

49

 

 

 

 

 

 

 

Balance at end of quarter

 

$

(4,879

)

 

 

(1)
Includes the amortization of the unrecognized loss on retirement plans, which was charged to “Selling, General and Administrative” Expense on the Consolidated Statements of Operations for all periods presented. The Company recognized expense of $58,000, or $43,000 net of taxes, for the three months ended April 29, 2023.

Stock-based Compensation

All share-based payments, including grants of employee stock options and restricted stock, are recognized as an expense in the Consolidated Statements of Operations based on their fair values and vesting periods. The fair value of stock options is determined using the Black-Scholes valuation model and requires the input of subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (the “expected term”), the estimated volatility of the Company’s common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements (“forfeitures”). The Company reviews its valuation assumptions at each grant date and, as a result, is likely to change its valuation assumptions used to value employee stock-based awards granted in future periods. The values derived from using the Black-Scholes model are recognized as an expense over the vesting period, net of estimated forfeitures. The estimation of stock-based awards

9


 

that will ultimately vest requires judgment. Actual results and future changes in estimates may differ from the Company’s current estimates.

There were no grants of stock options in the first three months of fiscal 2024. For the first three months of fiscal 2023, the fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option-pricing model based on the assumptions in the table below as it relates to stock options granted.

 

 

 

April 29, 2023

 

Expected volatility

 

86.3% - 92.1%

 

Risk-free interest rate

 

3.71%-4.42%

 

Expected term

 

2.5 yrs.

 

Dividend rate

 

 

 

Weighted average fair value of options granted

 

$

3.24

 

 

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for events or changes in circumstances that might indicate the carrying amount of the assets may not be recoverable. The Company’s judgment regarding the identification of impairment indicators is based on operational performance at the store level. Factors considered by the Company that could result in an impairment triggering event include significant changes in the use of assets, a current period operating or cash flow loss, underperformance of a store relative to historical or expected operating results, and an accumulation of costs significantly in excess of the amount originally expected for the construction of the long-lived store assets. The Company assesses the recoverability of the assets by determining whether the carrying value of such assets over their respective remaining lives can be recovered through projected undiscounted future cash flows. The model for undiscounted future cash flows includes assumptions, at the individual store level, with respect to expectations for future sales and gross margin rates as well as an estimate for occupancy costs used to estimate the fair value of the respective store’s operating lease right-of-use asset. The amount of impairment, if any, is measured based on projected discounted future cash flows using a discount rate reflecting the Company’s average cost of funds.

There were no impairments or non-cash gains recognized in the first three months of fiscal 2024 and fiscal 2023.

 

Advertising Costs

The Company expenses in-store advertising costs as incurred. Creative production costs, if any, are expensed in the period in which the advertising is first aired, and media costs are expensed as incurred. Direct response advertising costs, if any, are expensed in the period in which the mailing occurs. Advertising expense, which is included in selling, general and administrative expenses, was $7.3 million and $7.0 million for the first three months of fiscal 2024 and fiscal 2023, respectively.

Leases

The Company determines if an arrangement contains a lease at the inception of a contract. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use (“ROU”) assets and lease liabilities are recognized at the commencement date based on the present value of the remaining future minimum lease payments, initial direct costs and any lease incentives are included in the value of those ROU assets. As the interest rate implicit in the Company’s leases is not readily determinable, the Company utilizes its incremental borrowing rate, based on information available at the lease measurement date, to determine the present value of future payments. The Company elected the lessee non-lease component separation practical expedient, which permits the Company to not separate non-lease components from the lease components to which they relate. The Company also made an accounting policy election that the recognition requirement of ASC 842 will not be applied to certain, if any, non-store leases, with a term of 12 months or less, recognizing those lease payments on a straight-line basis over the lease term. At May 4, 2024, the Company had no short-term leases.

The Company’s store leases typically contain options that permit renewals for additional periods of up to five years each. In general, for store leases with an initial term of 10 years or more, the options to extend are not considered reasonably certain at lease commencement. For store leases with an initial term of 5 years, the Company evaluates each lease independently and, when the Company considers it reasonably certain that it will exercise an option to extend, the associated payment of that option will be included in the measurement of the ROU asset and lease liability. Renewal options are not included in the lease term for automobile and equipment leases because they are not considered reasonably certain of being exercised at lease commencement. Renewal options were not considered for the Company’s corporate headquarters and distribution center lease, which was entered into in 2006 and was for an initial 20-year term. At the end of the initial term, the Company will have the opportunity to extend this lease for six additional successive periods of five years.

For store leases, the Company accounts for lease components and non-lease components as a single lease component. Certain store leases may require additional payments based on sales volume, as well as reimbursement for real estate taxes, common area maintenance and insurance, and are expensed as incurred as variable lease costs. Other store leases contain one periodic fixed lease payment that

10


 

includes real estate taxes, common area maintenance and insurance. These fixed payments are considered part of the lease payment and included in the ROU assets and lease liabilities. Tenant allowances are included as an offset to the right-of-use asset and amortized as reductions to rent expense over the associated lease term.

See Note 4, "Leases" for additional information.

Recently Issued Accounting Pronouncements - Not Yet Adopted

 

In July 2023, the FASB issued ASU 2023-03, Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock, which amends or supersedes various SEC paragraphs within the Accounting Standards Codification to conform to past SEC announcements and guidance issued by the SEC. The ASU does not provide any new guidance, and as such, there is no transition effective date. ASU 2023-03 is not expected to have a material impact on the Company's Consolidated Financial Statements.

 

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendment in Response to the SECs Disclosure Update and Simplification Initiative. ASU-2023-06 incorporates several disclosure and presentation requirements currently residing in the SEC Regulations S-X and S-K. The amendments will be applied prospectively and are effective when the SEC removes the related requirements from Regulations S-X or S-K. Any amendments the SEC does not remove by June 30, 2027 will not be effective. The ASU is not expected to have a material impact on our consolidated financial statements or related disclosures because the Company is currently subjected to the reporting requirements of Regulations S-X and S-K.

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), which requires all public entities to provide enhanced disclosures about significant segment expenses. The amendments in this ASU are to be applied retrospectively and are effective for our annual financial statements starting in fiscal 2024 and interim periods starting in fiscal 2025, with early adoption permitted. We are currently evaluating the impact of this accounting standard.

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), which enhances transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid and to improve the effectiveness of income tax disclosures. This ASU will be effective for fiscal year 2025, and allows for adoption on a prospective basis, with a retrospective option. Early adoption is permitted. We are currently evaluating the effect of adopting this new accounting standard.

 

In March 2024, the FASB issued ASU 2024-01 Compensation – Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards, which clarified how an entity determines whether a profits interest or similar award is within the scope of Accounting Standards Codification (“ASC”) 718, Compensation – Stock Compensation, by adding illustrative guidance. The guidance in ASU 2024-01 is effective for annual reporting periods beginning after December 15, 2024, and can be applied either retrospectively to all prior periods presented in the consolidated financial statements or prospectively to profits interest and similar awards granted or modified on or after the date at which the entity first applies the amendments. Early adoption is permitted. The adoption of ASU 2024-01 is not expected to have any impact on the Company’s consolidated financial statements.

There were no other new accounting pronouncements, issued or effective during the first three months of fiscal 2024, which had or are expected to have a significant impact on the Company’s Consolidated Financial Statements.

2. Revenue Recognition

The Company operates as a retailer of big and tall men’s clothing, which includes stores and direct. Revenue is recognized by the operating segment that initiates a customer’s order. Store sales are defined as sales that originate and are fulfilled directly at the store level. Direct sales are defined as sales that originate online, including those initiated online at the store level, on its website or on third-party marketplaces. Generally, all revenues are recognized when control of the promised goods is transferred to customers, in an amount that reflects the consideration in exchange for those goods. Sales tax collected from customers and remitted to taxing authorities is excluded from revenue and is included as part of accrued expenses on the Consolidated Balance Sheets.

Unredeemed Gift Cards, Gift Certificates, and Credit Vouchers. Upon issuance of a gift card, gift certificate, or credit voucher, a liability is established for its cash value. The liability is relieved and net sales are recorded upon redemption by the customer. Based on historical redemption patterns, the Company can reasonably estimate the amount of gift cards, gift certificates, and credit vouchers for which redemption is remote, which is referred to as “breakage.” Breakage is recognized over two years in proportion to historical redemption trends and is recorded as sales in the Consolidated Statements of Operations. The gift card liability, net of breakage, was $2.4 million and $3.2 million at May 4, 2024 and February 3, 2024, respectively.

11


 

Unredeemed Loyalty Coupons. The Company offers a free loyalty program to its customers for which points accumulate based on the purchase of merchandise. Under ASC 606, Revenue from Contracts with Customers, these loyalty points provide the customer with a material right and a distinct performance obligation with revenue deferred and recognized when the points are expected to redeem or expire. The cycle of earning and redeeming loyalty points is generally under one year in duration. The loyalty accrual, net of breakage, was $1.4 million and $1.7 million at May 4, 2024 and February 3, 2024, respectively.

Shipping. Shipping and handling costs are accounted for as fulfillment costs and are included in cost of sales for all periods presented. Amounts related to shipping and handling that are billed to customers are recorded in sales, and the related costs are recorded in cost of goods sold, including occupancy costs, in the Consolidated Statements of Operations.

Disaggregation of Revenue

As noted above under Segment Information in Note 1, the Company’s business consists of one reportable segment, its retail segment. Substantially all of the Company’s revenue is generated from its stores and direct businesses. Accordingly, the Company has determined that the following sales channels depict the nature, amount, timing, and uncertainty of how revenue and cash flows are affected by economic factors:

 

 

 

For the Three Months Ended

 

 

(in thousands)

 

May 4, 2024

 

 

April 29, 2023

 

 

Store sales

 

$

80,848

 

70.0%

$

87,297

 

69.6%

Direct sales

 

 

34,641

 

30.0%

 

38,145

 

30.4%

Total sales

 

$

115,489

 

 

$

125,442

 

 

3. Debt

Credit Agreement with Citizens Bank, N.A.

The Company has a credit facility with Citizens Bank, N.A, which provides for a $125.0 million secured, asset-based credit facility with a maturity date of October 28, 2026 (the "Credit Facility"). The maximum committed borrowing of $125.0 million includes a sublimit of $20.0 million for commercial and standby letters of credit and a sublimit of up to $15.0 million for swing line loans. The Company’s ability to borrow under the Credit Facility is determined using an availability formula based on eligible assets.

Borrowings under the Credit Facility bear interest at either a Base Rate loan or Daily Simple SOFR rate, at the Company's option. Base Rate loans will bear interest at a rate equal to (i) the greater of: (a) the Prime Rate, (b) the Federal Funds effective rate plus 0.50% per annum and (c) the Daily Simple SOFR rate plus 1.00% per annum (provided the Base Rate shall never be less than the Floor (as defined in the Credit Facility)), plus (ii) a varying percentage, based on the Company’s average excess availability, of either 0.25% or 0.50% (the “Applicable Margin”). Daily Simple SOFR loans will bear interest at a rate equal to (i) the Daily Simple SOFR rate plus an adjustment of 0.10% (provided the Daily Simple SOFR rate shall never be less than the Floor), plus (ii) the Applicable Margin. Any swingline loan will continue to bear interest at a rate equal to the Base Rate plus the Applicable Margin. The Company is subject to an unused line fee of 0.25%.

The Company’s obligations under the Credit Facility are secured by a lien on substantially all of its assets. If the Company’s availability under the Credit Facility at any time is less than the greater of (i) 10% of the Revolving Loan Cap (the lesser of the aggregate revolving commitments or the borrowing base) and (ii) $7.5 million, then the Company is required to maintain a minimum consolidated fixed charge coverage ratio of 1.0:1.0 until such time as availability has exceeded the greater of (1) 10% of the Revolving Loan Cap and (2) $7.5 million for 30 consecutive days.

At May 4, 2024, the Company had no borrowings outstanding under the Credit Facility and unused availability was $79.2 million. The Company had no borrowings during the first quarter of fiscal 2024, resulting in an average unused excess availability of approximately $71.8 million. Outstanding standby letters of credit were $4.3 million and outstanding documentary letters were $1.5 million at May 4, 2024. At May 4, 2024, the Company’s prime-based interest rate was 8.75%.

 

4. Leases

The Company leases all of its store locations and its corporate headquarters, which also includes its distribution center, under operating leases. The store leases typically have initial terms of 5 years to 10 years, with options that usually permit renewal for additional five-year periods. The initial term of the lease for the corporate headquarters is for 20 years, with the opportunity to extend for six additional consecutive periods of five years, beginning in fiscal 2026. The Company also leases certain equipment and other assets under operating leases, typically with initial terms of 3 to 5 years. The Company is generally obligated for the cost of property taxes, insurance and common area maintenance fees relating to its leases, which are considered variable lease costs and are expensed as incurred.

ASC 842 requires the assessment of any lease modification to determine if the modification should be treated as a separate lease and if not, modification accounting would be applied. Lease modification accounting requires the recalculation of the ROU asset, lease

12


 

liability and lease expense over the respective lease term. As of May 4, 2024, the Company’s operating leases liabilities represent the present value of the remaining future minimum lease payments updated based on concessions and lease modifications.

Lease costs related to store locations are included in cost of goods sold including occupancy costs on the Consolidated Statements of Operations, and expenses and lease costs related to the corporate headquarters and equipment leases are included in selling, general and administrative expenses on the Consolidated Statements of Operations.

The following table is a summary of the Company’s components of net lease cost for the three months ended May 4, 2024 and April 29, 2023:

 

 

 

For the three months ended

 

 

 

May 4, 2024

 

 

April 29, 2023

 

(in thousands)

 

 

 

 

 

 

Operating lease cost

 

$

11,477

 

 

$

10,666

 

Variable lease costs(1)

 

 

3,393

 

 

 

3,166

 

Total lease costs

 

$

14,870

 

 

$

13,832

 

 

(1)
Variable lease costs include the cost of property taxes, insurance and common area maintenance fees related to leases.

Supplemental cash flow and balance sheet information related to leases for the first three months ended May 4, 2024 and April 29, 2023 was as follows:

 

 

 

 

 

 

 

 

(dollars in thousands)

 

For the three months ended

 

Cash paid for amounts included in the measurement of lease liabilities:

 

May 4, 2024

 

 

April 29, 2023

 

Operating cash flows for operating leases (1)

 

$

12,966

 

 

$

12,753

 

Non-cash operating activities:

 

 

 

 

 

 

Right-of-use assets obtained in exchange for operating lease liabilities

 

$

26,370

 

 

$

9,250

 

 

 

 

 

 

 

 

Weighted average remaining lease term

 

5.2 yrs.

 

 

4.3 yrs.

 

Weighted average discount rate

 

 

6.45

%

 

 

6.39

%

 

(1)
The cash paid for the first three months of fiscal 2024 and fiscal 2023 included prepaid rent of $4.3 million and $4.2 million, respectively.

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities recorded on the Consolidated Balance Sheet as of May 4, 2024:

 

(in thousands)

 

 

 

2024 (remaining)

 

$

31,965

 

2025

 

 

47,074

 

2026

 

 

35,037

 

2027

 

 

28,001

 

2028

 

 

19,978

 

Thereafter

 

 

39,695

 

Total minimum lease payments

 

$

201,750

 

Less: amount of lease payments representing interest

 

 

32,523

 

Present value of future minimum lease payments

 

$

169,227

 

Less: current obligations under leases

 

 

34,644

 

Long-term lease obligations

 

$

134,583

 

 

As of May 4, 2024, the Company had entered into four ten-year store leases that have not yet commenced with aggregated estimated future lease payments of approximately $6.3 million, which are not included in the above table. The leases are expected to commence during the second and third quarters of fiscal 2024.

 

13


 

5. Long-Term Incentive Plans

The following is a summary of the Company’s Long-Term Incentive Plan (“LTIP”). All equity awards granted under long-term incentive plans are issued from the Company’s stockholder-approved 2016 Incentive Compensation Plan. See Note 6, Stock-Based Compensation.

The LTIPs are granted annually and each LTIP covers a three-year performance period. Each participant in the LTIP participates based on that participant’s “Target Cash Value” which is defined as the participant’s annual base salary (on the participant’s effective date) multiplied by his or her LTIP percentage. Under each LTIP, 50% of each participant’s Target Cash Value is subject to time-based vesting and 50% is subject to performance-based vesting. Awards for any achievement of performance targets are not granted until the performance targets are achieved and then are subject to additional vesting through August 31 following the end of the applicable performance period.

2021-2023 LTIP

The performance targets for the Company’s 2021-2023 LTIP were approved by the Compensation Committee of the Board of Directors (the "Compensation Committee”) on March 8, 2021, and covered a three-year period performance period, which ended on February 3, 2024. The time-vested portion of the 2021-2023 LTIP vests in four annual installments, with the remaining installment vesting on April 1, 2025.

On March 29, 2024, the Compensation Committee approved a grant of awards, effective April 1, 2024, equal to $3.0 million for the achievement of the performance target for the 2021-2023 LTIP. In an effort to preserve share availability under the 2016 Plan, all awards, which are subject to further vesting through August 31, 2024, were granted in cash.

 

Active LTIPs

At May 4, 2024, the Company had three active LTIPs: the 2022-2024 LTIP, the 2023-2025 LTIP and the 2024-2026 LTIP. The time-based awards under each LTIP were granted in a combination of 50% RSUs and 50% cash.

Performance targets for the 2022-2024 LTIP, the 2023-2025 LTIP and the 2024-2026 LITP were established and approved by the Compensation Committee on April 9, 2022, May 1, 2023 and April 1, 2024, respectively. The performance period for each LTIP is three years. Awards for any achievement of performance targets will not be granted until the performance targets are achieved and then will be subject to an additional service requirement through August 31, 2025, August 31, 2026 and August 31, 2027, respectively. The time-based awards under the 2022-2024 LTIP, the 2023-2025 LTIP, and the 2024-2026 LTIP vest in four equal installments through April 1, 2026, April 1, 2027 and April 1, 2028, respectively. Assuming that the Company achieves the performance targets at target levels and all time-based awards vest, the compensation expense associated with the 2022-2024 LTIP, 2023-2025 LTIP and 2024-2026 LTIP is estimated to be approximately $4.8 million, $5.1 million and $5.3 million, respectively. Approximately half of the compensation expense for each LTIP relates to the time-based awards, which are being expensed straight-line over 48 months, 47 months and 49 months, respectively.

At May 4, 2024, the Company had accrued $1.4 million under the 2022-2024 LTIP and $0.1 million under the 2024-2026 LTIP for the performance awards. At May 4, 2024, the Company had no accrual for the performance-based awards under the 2023-2025 LTIP.

6. Stock-Based Compensation

The Company has one active stock-based compensation plan: the 2016 Incentive Compensation Plan (as amended, the “2016 Plan”). A grant of a stock option award or stock appreciation right will reduce the outstanding reserve on a one-for-one basis, meaning one share for every share granted. A grant of a full-value award, including, but not limited to, restricted stock, restricted stock units and deferred stock, will reduce the outstanding reserve by a fixed ratio of 1.9 shares for every share granted. At May 4, 2024, 15,120,538 shares were authorized under the 2016 Plan, of which 1,445,584 shares remained available for grant.

In accordance with the terms of the 2016 Plan, any shares outstanding under the previous 2006 Incentive Compensation Plan (the “2006 Plan”) at August 4, 2016 that subsequently terminate, expire or are cancelled for any reason without having been exercised or paid are added back and become available for issuance under the 2016 Plan, with stock options being added back on a one-for-one basis and full-value awards being added back on a 1 to 1.9 basis. At May 4, 2024, 59,254 stock options remained outstanding under the 2006 Plan.

The 2016 Plan is administered by the Compensation Committee. The Compensation Committee is authorized to make all determinations with respect to amounts and conditions covering awards. Options are not granted at a price less than fair value on the date of the grant. Except with respect to 5% of the shares available for awards under the 2016 Plan, no award will become exercisable unless such award has been outstanding for a minimum period of one year from its date of grant.

The following tables summarize the share activity and stock option activity for the first three months of fiscal 2024:

14


 

 

 

 

RSUs (1)

 

 

Deferred
shares
(2)

 

 

Performance
Share Units
(3)

 

 

Fully-Vested
 Shares
(4)

 

 

Total number
of shares

 

 

Weighted-
average
grant-date
fair value

 

Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding non-vested shares at beginning of year

 

 

536,285

 

 

 

435,568

 

 

 

573,000

 

 

 

 

 

 

1,544,853

 

 

$

3.53

 

Shares granted

 

 

376,416

 

 

 

8,713

 

 

 

 

 

 

9,734

 

 

 

394,863

 

 

$

3.58

 

Shares vested and/or issued

 

 

(129,112

)

 

 

 

 

 

 

 

 

(9,734

)

 

 

(138,846

)

 

$

4.67

 

Shares expired

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

Shares forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

Outstanding non-vested shares at end of quarter

 

 

783,589

 

 

 

444,281

 

 

 

573,000

 

 

 

 

 

 

1,800,870

 

 

$

3.46

 

 

(1)
During the first three months of fiscal 2024, the Company granted time-based RSUs under its 2024-2026 LTIP. See Note 5, Long-Term Incentive Plans. As a result of net share settlements, of the 129,112 RSUs that vested, 115,292 shares of common stock were issued.
(2)
The 8,713 shares of deferred stock, with a fair value of $36,246 represent director compensation in lieu of cash, in accordance with the director's irrevocable election. The shares of deferred stock will be issued upon the director's separation from service.
(3)
On August 11, 2023, the Company granted 573,000 performance share units ("PSUs") in connection with the extension of Mr. Kanter's employment agreement. The award consists of nine tranches, with the first tranche vesting if and when the 30-day volume-weighted closing price of the Company's common stock is equal to or greater than $6.50 per share. Each subsequent tranche will vest upon achievement of the 30-day volume-weighted closing price of the Company's common stock in $0.25 increments with the ninth tranche vesting when such price is equal to or greater than $8.50 per share. The PSUs are subject to a one-year minimum vesting period, and any unvested PSUs will expire on August 11, 2026. The $2.4 million fair value is being expensed over the respective derived service periods of each tranche which range from 12 to 13 months. The respective fair value and derived service periods assigned to the PSUs were determined using a Monte Carlo model based on: a weighted historical volatility of 57.8%, a term of 3 years, stock price on the date of grant of $4.98 per share, a risk-free rate of 4.6% and a cost of equity of 11.0%.
(4)
Represented compensation, with a fair value of $40,493, to certain directors, who are required to receive shares, in lieu of cash, in order to satisfy their minimum equity ownership under the Non-Employee Director Compensation Plan. Voluntary shares received, in lieu of cash, are reported below under Non-Employee Director Compensation Plan.

 

 

 

Number of
shares

 

 

Weighted-
average
exercise price
per option

 

 

Weighted-
average
remaining
contractual term

 

 

Aggregate
intrinsic value
(000's)

 

Stock Options

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding options at beginning of year

 

 

3,180,739

 

 

$

0.75

 

 

 

 

 

$

10,962

 

Options granted

 

 

 

 

 

 

 

 

 

 

 

 

Options exercised

 

 

(132,397

)

 

$

0.58

 

 

 

 

 

 

388

 

Options expired

 

 

(16,233

)

 

$

5.29

 

 

 

 

 

 

 

Options forfeited

 

 

(1,715

)

 

$

0.75

 

 

 

 

 

 

5

 

Outstanding options at end of quarter

 

 

3,030,394

 

 

$

0.73

 

 

6.3 years

 

 

$

7,761

 

Options exercisable at end of quarter

 

 

2,790,202

 

 

$

0.73

 

 

6.2 years

 

 

$

7,158

 

 

For the first three months of fiscal 2024, the Company granted 376,416 restricted stock units, 8,713 shares of deferred stock and 9,734 fully-vested shares. For the first three months of fiscal 2023, the Company granted stock options to purchase an aggregate of 1,316 shares of common stock, 270,867 restricted stock units and 2,844 fully-vested shares.

Non-Employee Director Compensation Plan

The Company granted 8,412 shares of common stock, with a fair value of approximately $34,994, to certain of its non-employee directors as compensation in lieu of cash in the first three months of fiscal 2024. These shares are in addition to any shares that may be granted under the 2016 Plan related to the requirement to receive equity if a director has not yet satisfied his or her minimum equity ownership requirement under the Non-Employee Director Compensation Plan.

Stock Compensation Expense

15


 

The Company recognized total stock-based compensation expense of $0.9 million and $0.4 million for the first three months of fiscal 2024 and fiscal 2023, respectively. The total compensation cost related to time-vested stock options, RSU awards, and PSU awards not yet recognized as of May 4, 2024 was approximately $3.9 million, net of estimated forfeitures, which will be expensed over a weighted average remaining life of 30 months.

 

7. Equity and Earnings per Share

The following table provides a reconciliation of the number of shares outstanding for basic and diluted earnings per share:

 

 

For the three months ended

 

 

 

May 4, 2024

 

 

April 29, 2023

 

(in thousands)

 

 

 

 

 

 

Common stock outstanding:

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

58,036

 

 

 

62,690

 

Common stock equivalents – stock options, restricted stock units and deferred stock

 

 

2,927

 

 

 

3,626

 

Diluted weighted average common shares outstanding

 

 

60,963