April and May sales performance accelerates
with start of advertising campaign
Reaffirms Fiscal 2017 guidance
Destination XL Group, Inc. (NASDAQ:DXLG), the largest
omni-channel specialty retailer of big and tall men's apparel,
today reported operating results for the first quarter of fiscal
2017.
Fiscal 2017 First Quarter
Highlights
- Total sales of $107.7 million compared
to $107.9 million in the prior-year quarter including a comparable
sales decline of 2.1%.
- Total sales for the month of April
increased 8.6%, inclusive of a comparable sales increase of
6.4%
- Net Loss of ($6.1) million vs. Net
Income of $0.2 million in the prior year quarter
- EBITDA was $2.5 million compared to
$8.4 million in the prior-year quarter
- Repurchased approximately 670,000
shares, leaving $10.2 million remaining on existing share
repurchase authorization
Management Comments
"We're pleased to report that our sales momentum has accelerated
since the start of fiscal 2017,” said President and CEO David
Levin. “We experienced a challenging sales environment in February
and March, but we anticipated a strong April with the launch of our
spring advertising campaign on April 2nd. Since the campaign
launch, not only has our April performance exceeded our
expectations with positive comp of 6.4%, the positive trend has
continued in May.” Levin said.
Levin also noted, “Our top priorities for fiscal 2017 are
customer acquisition and retention, which we are fueling by
reinvesting in marketing and in our digital capabilities. These
investments, which will have an adverse impact on EBITDA and Net
Income in the near term, have been factored into our guidance and,
more importantly, are building the foundation for sustained future
sales growth with attractive profit margins.
Levin further commented, “A recent report, which has been
repeated by various media outlets, has called into question our
ability to repay our debt. This report inaccurately assesses our
financial position and business outlook. We ended fiscal 2016 with
over $57.0 million of unused, excess availability under our credit
facility and a Debt to EBITDA ratio of 2.0x. We remain on track to
generate free cash flow of $15 to $20 million which will be used to
repay our debt and repurchase our shares in the open market.”
Fiscal 2017 First Quarter
Results
Sales
Total sales for the first quarter declined slightly to $107.7
million from $107.9 million in the prior year’s first quarter. The
decrease of $0.2 million in total sales was due to a comparable
sales decrease of $2.1 million, or 2.1% compared to a comparable
sales increase of 2.0% last year. In the month of April, comparable
sales increased to 6.4% which coincided with the start of our
spring television marketing campaign.
Gross Margin
Gross margin, inclusive of occupancy costs, was 45.2%, compared
with gross margin of 46.1% for the prior year’s first quarter. Our
merchandise margins improved 10 basis points over first quarter of
last year primarily due to fewer promotional markdowns, but we also
had a 100 basis point increase in occupancy costs as a percentage
of total sales. The Company opened 11 new DXL stores in the first
quarter, compared to just 5 in the first quarter last year. The
increase in occupancy expense as a percent of sales was due to
higher rent expense on new DXL stores plus pre-opening rent expense
on the elevated number of new store openings.
Selling, General & Administrative
SG&A expenses for the first quarter were 42.9% of sales,
compared with 38.3% in the prior year’s first quarter. On a dollar
basis, SG&A expense increased $4.8 million from the prior year
quarter, primarily due to an increase in advertising costs of
approximately $3.5 million. The balance of the increase was due to
increases in stores payroll and other supporting costs associated
with a greater DXL store base.
Net Income (Loss)
Net Loss for the first quarter was $6.1 million, or $(0.12) per
diluted share, compared with net income of $0.2 million, or $0.00
per diluted share, for the prior year’s first quarter. On a
non-GAAP basis, assuming a normalized tax rate of 40%, adjusted net
loss for the first quarter was $(0.07) per diluted share compared
with net income of $0.00 per diluted share for the prior year’s
first quarter. The decline in earnings was driven primarily by a
combination of higher planned marketing costs related to our
television advertising campaign as well as lower gross margin
dollar contribution due to occupancy de-leverage.
EBITDA
Earnings before interest, taxes, depreciation and amortization
(EBITDA), a non-GAAP measure, for the first quarter were $2.5
million, compared with $8.4 million for the first quarter of fiscal
2016.
Cash Flow
Cash Flow provided by operations for the first quarter of fiscal
2017 was $(4.6) million, compared with cash flow of $(5.0) million
for the first quarter of fiscal 2016. Capital expenditures for
the first quarter of fiscal 2017 were $6.9 million and consisted of
$5.8 million for new DXL stores and $1.1 million for infrastructure
projects. Capital expenditures for the first quarter of fiscal 2016
of $6.1 million consisted of $4.6 million for new DXL stores and
$1.5 million for infrastructure projects. Free cash flow, a
non-GAAP measure, decreased slightly to $(11.5) million for the
first quarter of fiscal 2017 from $(11.1) million for the first
quarter of fiscal 2016.
For the three months ended (in millions) April
29, 2017 April 30, 2016 Cash flow from operating
activities (GAAP basis)(1) $ (4.6 ) $ (5.0 ) Capital expenditures,
infrastructure projects (1.1 ) (1.5 ) Free Cash Flow,
before DXL capital expenditures $ (5.7 ) $ (6.5 ) Capital
expenditures for DXL stores (5.8 ) (4.6 ) Free Cash
Flow (non-GAAP basis) $ (11.5 ) $ (11.1 )
The Company believes it is important to distinguish between
capital expenditures for DXL stores, which is a discretionary
investment, and capital expenditures for infrastructure projects.
Capital expenditures on all new DXL stores are subject to demanding
ROIC (“Return on Invested Capital”) hurdles. Management believes
free cash flow before DXL capital expenditures is an important
metric, because it demonstrates DXL’s ability to strengthen
liquidity while also contributing to the funding of DXL store
growth.
Non-GAAP Measures
EBITDA, adjusted net income (loss) and adjusted net income
(loss) per share, free cash flow and free cash flow before DXL
capital expenditures are non-GAAP financial measures. Please see
“Non-GAAP Measures” below and reconciliations of these non-GAAP
measures to the comparable GAAP measures that follow in the tables
below.
Balance Sheet & Liquidity
At April 29, 2017, the Company had cash and cash equivalents of
$7.9 million. Total debt at April 29, 2017 was $78.8 million. Total
debt consisted of $62.1 million outstanding under the Company’s
credit facility, net of unamortized debt issuance costs, and
approximately $16.7 million outstanding under its term loan and
equipment financing notes, net of unamortized debt issuance costs.
Excess availability under its credit facility was $45.7 million at
April 29, 2017, a decrease from year-end as we built up Spring
seasonal inventory consistent with prior years.
Inventory was $121.4 million at April 29, 2017 compared with
$117.4 million at January 28, 2017 and $125.8 million at April 30,
2016. The decrease in inventory compared with last year’s first
quarter is due to inventory initiatives to improve timing of
receipts and weeks of supply on hand.
Under the Company’s stock repurchase plan, the Company has
repurchased approximately 670,000 shares at a total cost of
approximately $1.8 million. Approximately $10.2 million remains
available for purchases under the stock repurchase plan.
Retail Store Information
For the first quarter of fiscal 2017, the Company opened a total
of 10 DXL retail stores, with 2 DXL retail stores opened in
Ontario, Canada, and 1 DXL outlet store:
Year End 2015 Year End 2016 At
April 29, 2017 Year End 2017E
# ofStores
Sq Ft.(000’s)
# ofStores
Sq Ft.(000’s)
# ofStores
Sq Ft.(000’s)
# ofStores
Sq Ft.(000’s)
DXL retail 166 1,369 192 1,542 202
1,606 211 1,660 DXL outlets 9 45 13 66 14 72 14 72 CMXL
retail 125 443 97 340 90 314 81 281 CMXL outlets 40 126 36 113 33
103 33 104 Rochester Clothing 5 51 5 51 5 51 5
51 Total 345 2,034 343 2,112 344 2,146 344
2,168
Reaffirmed Fiscal 2017
Outlook
Our fiscal 2017 outlook, based on a 53-week year, is as
follows:
- Sales are expected to range from $470.0
million to $480.0 million, with a total Company comparable sales
increase of approximately 1.0% to 4.0%.
- Gross margin rate of approximately
46.0%, an increase of 50 basis points from fiscal 2016.
- SG&A expenses expected to increase
150 to 200 basis points from fiscal 2016.
- Net loss, on a GAAP basis, of $(5.7) to
$(11.7) million, or $(0.11) to $(0.23) per diluted share.
- EBITDA of $24.0 to $30.0 million.
*
- Adjusted net loss, on a non-GAAP basis,
of $(0.06) to $(0.14) per diluted share, assuming a normal tax rate
of 40%. *
- Capital expenditures of approximately
$22.0 million, $8.3 million of which will be for infrastructure
projects and $13.7 million of which will be for new DXL stores
(before tenant allowances of approximately $5.0 million).
- Cash flow from operating activities of
$37.0 million to $42.0 million, resulting in free cash flow after
capital expenditures for new DXL stores of $15.0 to $20.0 million.
*
* Reconciliations of these non-GAAP measures to their comparable
GAAP measures are provided in the tables below.
Conference Call
The Company will hold a conference call to review its financial
results on Friday, May 19, 2017 at 9:00 a.m. ET. To listen to the
live webcast, visit the "Investor Relations" section of the
Company's website. The live call also can be accessed by dialing:
(888) 378-0320. Please reference conference ID: 5302286. An
archived version of the webcast may be accessed by visiting the
"Events" section of the Company's website for up to one year.
During the conference call, the Company may discuss and answer
questions concerning business and financial developments and
trends. The Company’s responses to questions, as well as other
matters discussed during the conference call, may contain or
constitute information that has not been disclosed previously.
Non-GAAP Measures
In addition to financial measures prepared in accordance with
U.S. generally accepted accounting principles (“GAAP”), this press
release contains non-GAAP financial measures, including EBITDA,
adjusted net income (loss), adjusted net income (loss) per diluted
share, free cash flow and free cash flow before DXL capital
expenditures. The presentation of these non-GAAP measures is not in
accordance with GAAP, and should not be considered superior to or
as a substitute for net loss, loss per diluted share or cash flows
from operating activities or any other measure of performance
derived in accordance with GAAP. In addition, all companies do not
calculate non-GAAP financial measures in the same manner and,
accordingly, the non-GAAP measures presented in this release may
not be comparable to similar measures used by other companies. The
Company believes the inclusion of these non-GAAP measures helps
investors gain a better understanding of the Company’s performance,
especially when comparing such results to previous periods, and
that they are useful as an additional means for investors to
evaluate the Company's operating results, when reviewed in
conjunction with the Company's GAAP financial statements.
Reconciliations of these non-GAAP measures to their comparable GAAP
measures are provided in the tables below.
The Company believes that EBITDA (calculated as earnings before
interest, taxes, depreciation and amortization) is useful to
investors in evaluating its performance. With the significant
capital investment associated with the DXL transformation and,
therefore, increasing levels of depreciation and interest,
management uses EBITDA as a key metric to measure profitability and
economic productivity.
The Company has fully reserved against its deferred tax assets
and, therefore, its net loss is not reflective of earnings assuming
a “normal” tax position. Adjusted net income (loss) provides
investors with a useful indication of the financial performance of
the business, on a comparative basis, assuming a normalized
effective tax rate of 40%.
Free cash flow and free cash flow before DXL capital
expenditures are metrics that management uses to monitor liquidity.
Management believes this metric is important to investors because
it demonstrates the Company’s ability to strengthen liquidity while
also contributing to the funding of the DXL store growth. Free cash
flow is calculated as cash flow from operating activities, less
capital expenditures, and excludes the mandatory and discretionary
repayment of debt. Free cash flow before DXL capital expenditures
is calculated as free cash flow with DXL capital expenditures added
back.
About Destination XL Group,
Inc.
Destination XL Group, Inc. is the largest omni-channel specialty
retailer of big & tall men's apparel with store locations
throughout the United States and in London, England and Ontario,
Canada. The retailer operates under five brands: DXL, Casual Male
XL, Rochester Clothing, ShoesXL and LivingXL. The Company also
operates e-commerce sites at www.destinationxl.com and
www.bigandtall.com. With more than 2,000 private label and name
brand styles to choose from, big and tall customers are provided
with a unique blend of wardrobe solutions not available at
traditional retailers. The Company is headquartered in Canton,
Massachusetts. For more information, please visit the Company’s
investor relations website: http://investor.destinationxl.com.
Forward-Looking
Statements
Certain statements and information contained in this press
release constitute forward-looking statements under the federal
securities laws, including statements regarding the Company’s
expectations with respect to cash flows, gross profit margins,
store counts, capital expenditures, debt levels, sales, EBITDA, and
earnings for fiscal 2017, and the Company’s ability to sustain
future sales growth. The discussion of forward-looking information
requires management of the Company to make certain estimates and
assumptions regarding the Company's strategic direction and the
effect of such plans on the Company's financial results. The
Company's actual results and the implementation of its plans and
operations may differ materially from forward-looking statements
made by the Company. The Company encourages readers of
forward-looking information concerning the Company to refer to its
filings with the Securities and Exchange Commission, including
without limitation, its Annual Report on Form 10-K filed on March
20, 2017, that set forth certain risks and uncertainties that may
have an impact on future results and direction of the Company,
including the Company’s ability to grow its market share, its
ability to predict customer tastes and fashion trends, its ability
to forecast sales growth trends and its ability to compete
successfully in the United States men’s big and tall apparel
market.
Forward-looking statements contained in this press release speak
only as of the date of this release. Subsequent events or
circumstances occurring after such date may render these statements
incomplete or out of date. The Company undertakes no obligation and
expressly disclaims any duty to update such statements.
DESTINATION XL GROUP, INC. CONSOLIDATED STATEMENTS OF
OPERATIONS (In thousands, except per share data) (unaudited)
For the three months ended April 29,
2017 April 30, 2016 Sales $ 107,629 $ 107,891 Cost of goods sold
including occupancy 58,941 58,125 Gross
profit 48,688 49,766 Expenses: Selling, general and
administrative 46,168 41,369 Depreciation and amortization
7,754 7,342 Total expenses 53,922
48,711 Operating income (loss) (5,234 )
1,055 Interest expense, net (802 ) (784 )
Income (loss) before provision for income taxes (6,036 ) 271
Provision for income taxes 29 57
Net income (loss) $ (6,065 ) $ 214 Net income
(loss) per share - basic and diluted $ (0.12 ) $ 0.00
Weighted-average number of common shares outstanding: Basic 49,735
49,513 Diluted 49,735 49,880 DESTINATION XL GROUP,
INC. CONSOLIDATED BALANCE SHEETS April 29, 2017, January 28, 2017
and April 30, 2016 (In thousands) Unaudited
April 29, January 28, April 30, 2017
2017 2016 ASSETS Cash and cash equivalents $ 7,928 $ 5,572 $
5,853 Inventories 121,424 117,446 125,788 Other current assets
16,624 15,931 13,768 Property and equipment, net 124,652 124,347
124,070 Intangible assets 2,123 2,228 2,552 Other assets
3,843 3,804 3,718 Total assets $ 276,594 $ 269,328 $
275,749 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts
payable, accrued expenses and other liabilities $ 102,780 $ 104,521
$ 92,163 Long-term debt 16,655 19,002 24,247 Borrowings under
credit facility 62,095 44,097 55,741 Deferred gain on
sale-leaseback 12,822 13,188 14,288 Stockholders' equity
82,242 88,520 89,310 Total liabilities and
stockholders' equity $ 276,594 $ 269,328 $ 275,749
GAAP TO NON-GAAP RECONCILIATION OF NET
INCOME (LOSS)
For the three months ended April 29,
2017 April 30, 2016 $
Per dilutedshare
$
Per dilutedshare
(in thousands,
except per share data)
Net income (loss) (GAAP basis) $ (6,065 ) $ (0.12 ) $ 214 $ 0.00
Add back: Actual income tax provision 29 57
Income tax (provision) benefit, assuming a
normal tax rate of 40%
2,414 (108 ) Adjusted net income
(loss) (non-GAAP basis) $ (3,622 ) $ (0.07 ) $ 163 $ 0.00
Weighted average number of common shares outstanding on a diluted
basis 49,735 49,880
GAAP TO NON-GAAP RECONCILIATION OF
EBITDA
For the three months ended April 29,
2017 April 30, 2016
(in
millions)
Net income (loss) (GAAP basis) $ (6.1 ) $ 0.2 Add back: Provision
for income taxes 0.0 0.1 Interest expense 0.8 0.8 Depreciation and
amortization 7.8 7.3 EBITDA (non-GAAP basis) $ 2.5 $
8.4
GAAP TO NON-GAAP RECONCILIATION OF FREE
CASH FLOW
For the three months ended (in
millions) April 29, 2017 April 30, 2016 Cash flow from
operating activities (GAAP basis)(1) $ (4.6 ) $ (5.0 ) Capital
expenditures, infrastructure projects (1.1 ) (1.5 )
Free Cash Flow, before DXL capital expenditures $ (5.7 ) $ (6.5 )
Capital expenditures for DXL stores (5.8 ) (4.6 )
Free Cash Flow (non-GAAP basis) $ (11.5 ) $ (11.1 )
2017 FORECAST GAAP TO NON-GAAP
RECONCILIATIONS
Projected Fiscal 2017
(in millions, except
per share data)
per diluted share Net loss (GAAP basis)
$(5.7)-$(11.7) Add back: Provision for income taxes 0.2 Interest
expense 3.0 Depreciation and amortization 32.5 EBITDA (non-GAAP
basis) $24.0-$30.0 Net loss ( GAAP basis) $(5.7)-$(11.7)
$(0.11)-$(0.23) Income tax benefit, assuming 40% rate $2.3-$4.7
$0.05-0.09 Adjusted net loss (non-GAAP basis) $(3.4)-$(7.0)
$(0.06)-(0.14) Weighted average common shares outstanding - diluted
49.5 Cash flow from operating activities (GAAP basis)
$37.0-$42.0 Capital expenditures, infrastructure projects (8.3)
Free Cash Flow, before DXL capital expenditures (non-GAAP basis)
$28.7-$33.7 Capital expenditures for DXL stores (13.7) Free Cash
Flow (non-GAAP basis) $15.0-$20.0
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170519005027/en/
ICR, Inc.Investors:Tom Filandro,
646-277-1235Tom.Filandro@icrinc.comorMedia:Alecia Pulman,
203-682-8224Alecia.pulman@icrinc.com
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