Destination XL Group, Inc. — Form 10-Q Summary
Period: First quarter of fiscal 2023, three months ended April 29, 2023; comparable period ended April 30, 2022. Fiscal 2023 is a 53-week year ending February 3, 2024. The request metadata labels the period “2022 Q1,” but the filing covers 2023 Q1.
Business context and results
Destination XL is a specialty retailer of big-and-tall men’s clothing, operating stores and digital channels in one reportable retail segment. At quarter-end it operated 281 stores and digital sales channels.
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Sales | $125.4 million | $127.7 million |
| Gross profit / gross margin | $60.9 million / 48.6% | $63.9 million / 50.0% |
| Operating income | $9.2 million | $13.6 million |
| Net income | $7.0 million | $13.4 million |
| Diluted EPS | $0.11 | $0.20 |
| Adjusted EBITDA (non-GAAP) | $12.6 million; 10.1% margin | $17.3 million; 13.5% margin |
| Operating cash flow / free cash flow (non-GAAP) | $(4.2) million / $(5.9) million | $(1.5) million / $(2.7) million |
Material changes and financial position
- Sales declined 1.7% year over year. Comparable sales rose 0.6% overall, with stores up 1.5% and direct sales down 1.6%. Comparable sales increased 9.1% in February, then declined 2.8% in March and 1.9% in April.
- Gross margin contracted 140 basis points. Management cited higher private-label product costs, direct shipping expense and loyalty-program costs, partly offset by lower inbound freight. SG&A increased $1.7 million, and rose to 38.5% of sales from 36.5%.
- Net income and adjusted EBITDA fell year over year. The prior-year period included a $0.4 million asset-impairment gain in operating results and a substantially lower effective tax rate; FY2023’s effective tax rate was 26.6% versus 0.8%.
- Cash and cash equivalents were $29.9 million, with $16.1 million of short-term investments, for combined cash and investments of approximately $46.0 million. Cash and investments were $7.5 million at April 30, 2022. The quarter’s $22.1 million decline in cash included a $16.1 million purchase of short-term investments.
- Inventory was $100.3 million, up $3.4 million from the year-earlier quarter; management said it was 11% below pre-pandemic levels, with turnover up more than 25% versus fiscal 2019. Clearance inventory was 7.8% of total inventory.
- No borrowings were outstanding under the $125 million asset-based credit facility; unused availability was $93.8 million. Standby and documentary letters of credit totaled $5.1 million. Operating lease liabilities were $143.9 million, including $37.1 million current.
- Current assets were $155.2 million and current liabilities $90.0 million at April 29, 2023. Stockholders’ equity was $145.7 million.
Outlook, commentary and risks
- Management expects fiscal 2023 gross margin to be about 100 basis points below fiscal 2022, marketing expense to be approximately 5.7% of sales, and capital expenditures of $19–$21 million.
- Plans include three new DXL stores, 10 Casual Male-to-DXL conversions, and starting construction on at least five DXL remodels by fiscal year-end. Management believes it could potentially open 50 new DXL stores over the next three to five years.
- The board authorized up to $15 million in share repurchases through March 16, 2024. No shares were repurchased in Q1; management expected to begin in Q2, subject to market conditions and other factors.
- Management said liquidity should be adequate for at least the next 12 months. It cautioned about inflation, rising interest costs, consumer-spending changes, inventory management, the war in Ukraine, and execution of its strategy. First-quarter cash outflow is described as seasonal, reflecting inventory build and incentive payments.
- The filing reports ordinary-course legal proceedings that management does not expect to materially affect results or financial position. It reports no material changes to previously disclosed risk factors and no material changes to internal control over financial reporting.
Important facts for investors to verify
- Whether sales and comparable-sales trends stabilized after the March and April declines, particularly in direct sales and customer traffic.
- Whether margin pressure, payroll and other SG&A costs, and loyalty-program costs evolve as management expects.
- Inventory levels, clearance mix and turnover, given the importance of inventory to seasonal cash flow.
- Actual capital spending, store openings/conversions, and the timing and size of any share repurchases.
- Credit-facility availability and lease obligations alongside reported cash and investments; adjusted EBITDA and free cash flow are non-GAAP measures.