Business context and reporting period
Destination XL Group, Inc. is a specialty retailer of big-and-tall men’s clothing, operating stores, direct/e-commerce and wholesale businesses. This filing covers the fiscal first quarter ended May 2, 2020, compared with the three months ended May 4, 2019; the request metadata’s “2019 Q1” does not match the filing period. The company operated 321 stores at May 2, 2020.
Financial results and position
| Metric | Quarter ended May 2, 2020 | Prior comparable quarter |
|---|---|---|
| Sales | $57.2 million | $113.0 million |
| Gross profit / margin | $13.2 million / 23.1% | $49.4 million / 43.7% |
| Operating loss | $41.0 million | $2.2 million |
| Net loss / diluted loss per share | $41.7 million / $0.82 | $3.1 million / $0.06 |
| Adjusted EBITDA (non-GAAP) | $(18.9) million | $4.8 million |
| Cash used in operations | $16.8 million | $16.5 million |
| Capital expenditures | $1.6 million | $3.7 million |
| Free cash flow (non-GAAP) | $(18.4) million | $(20.2) million |
Store sales were $32.3 million, down from $86.7 million; direct sales were $22.9 million, compared with $23.8 million. Wholesale sales were $2.0 million versus $2.4 million. Store closures drove the revenue decline; increased promotions and occupancy-cost deleverage contributed to the lower gross margin.
At May 2, cash was $26.1 million, inventory $108.3 million, current assets $141.4 million and current liabilities $169.1 million. Revolver borrowings were $79.8 million gross; the FILO loan was $15.0 million. The debt table reports total gross debt of $94.8 million and net debt of $94.4 million, with $16.8 million of unused excess availability. The filing also states in its narrative that total debt was $96.5 million; investors should reconcile this difference. Stockholders’ equity fell to $17.5 million from $58.4 million at fiscal year-end, primarily reflecting the quarterly loss.
Material changes, outlook and risks
- Sales fell 49.3% year over year after all stores closed temporarily on March 17 in response to COVID-19. By June 2, 201 of 321 stores had reopened; management expected gradual reopening and said a return of customer demand could take several months.
- The company recorded a $16.3 million impairment charge: approximately $12.5 million for right-of-use assets and $3.8 million for property and equipment. Further impairment may be required if conditions worsen.
- Management drew $30.0 million on its revolver and amended the credit facility in April. The amendment increased borrowing availability by extending FILO advance rates, raised applicable interest margins by approximately 150 basis points, and permitted up to $15.0 million of vendor promissory notes. The facility matures May 24, 2023.
- Cost and cash actions included furloughs, salary reductions, 34 job eliminations, lower discretionary spending and capital expenditure, vendor payment extensions, and cancellation of approximately $148 million of merchandise orders at retail value. The company did not pay $4.2 million of rent due April 1 and was negotiating concessions; some concessions were agreed to in the second quarter, but future concessions were uncertain.
- Management said current projections indicated liquidity would cover working capital needs for the next 12 months, but emphasized that pandemic duration, consumer demand and financial effects were uncertain. No formal earnings or revenue guidance is provided.
- The company planned to source and sell protective masks through wholesale in the second quarter; management reported nearly 2.5 million masks sold and 250,000 for sale on DXL.com.
- Nasdaq notified the company that its share price did not meet the $1.00 minimum bid requirement. The compliance deadline was extended to December 21, 2020; delisting was not immediate, but there was no assurance of regaining compliance.
- Other exposures include variable-rate debt, lease obligations and potential effects of prolonged economic weakness on discretionary spending. Management reported no material expected impact from ordinary-course legal proceedings.
Important facts for investors to verify
- Reconcile the filing’s $96.5 million narrative debt figure with its debt table showing $94.8 million gross and $94.4 million net.
- Track store reopenings, sales recovery, e-commerce performance and whether the mask business produces material revenue or profit.
- Monitor revolver availability, borrowing-base changes, interest costs, vendor obligations and the company’s ability to meet liquidity needs.
- Confirm the status and terms of rent concessions, including amounts deferred or waived and any landlord actions.
- Assess whether further asset impairments, inventory markdowns or Nasdaq compliance measures arise as conditions develop.