Destination XL Q1 sales saved by ads, CEO Levin addresses financial position

By

Obi Anyanwu

Published
May 19, 2017

Advertising is paying off for Destination XL. After experiencing a slow start to the first quarter, the specialty retailer exceeded its sales expectations in April, which increased 8.6% due to its spring advertising that launched on April 2.
 
"We anticipated a strong April with the launch of our spring advertising campaign on April 2nd,” said President and CEO David Levin. “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.”
 

The April sales may have saved Destination XL’s first quarter sales. The retailer reported total sales of $107.7 million compared to $107.9 million in the previous year’s first quarter, and a comparable sales decline of 2.1%.
 
“Our top priorities for fiscal 2017 are customer acquisition and retention, which we are fueling by reinvesting in marketing and in our digital capabilities,” said Levin. “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."

Net income has been a focus for Destination XL, which reported a loss in fiscal 2016. In the first quarter, the net loss was $6.1 million compared to net income of $0.2 million in the prior year. Also, cash flow in the first quarter was $(4.6) million compared to $(5.0) million in the previous year. Levin addressed a report that called into question the retailer’s ability to repay its debt.

He said, “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.”
 
Gross margin decreased to 45.2% from 46.1% due to fewer promotional markdowns, but the company also had a 100 basis point increase in occupancy costs as a percentage of total sales. SG&A expenses were 42.9% of sales, and on a dollar basis, SG&A expenses increased $4.8 million, due to an increase in advertising costs of $3.5 million.
 
In addition, EBITDA was $2.5 million compared to $8.4 million in the prior year’s comparable period.
 
Following the first quarter results, Destination XL reaffirmed its fiscal 2017 outlook and continues to expect sales to be in range of $470.0 million and $480.0 million, total comparable sales to increase between 1.0% and 4.0%, net loss on a GAAP basis to range between $(5.7) to $(11.7) million, or $(0.11) to $(0.23) per share, and adjusted net loss, on a non-GAAP basis, to range from $(0.06) to $(0.14) per diluted share.