Filing summary
Period and entity: The supplied filing is Casual Male Retail Group, Inc.’s unaudited Form 10-Q for the quarter ended July 30, 2011 (fiscal 2011 second quarter), not a 2010 Q2 filing. The company operated big-and-tall apparel retail and direct businesses, including the emerging DestinationXL (DXL) format.
Key financial results
| Metric | Q2 FY2011 | Q2 FY2010 | Six months FY2011 | Six months FY2010 |
|---|---|---|---|---|
| Sales | $100.9 million | $97.3 million | $196.7 million | $192.2 million |
| Gross profit | $48.8 million | $45.1 million | $93.8 million | $88.7 million |
| Operating income | $7.4 million | $6.3 million | $12.2 million | $10.9 million |
| Net income | $6.6 million | $5.6 million | $10.8 million | $9.8 million |
| Diluted EPS | $0.14 | $0.12 | $0.22 | $0.21 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $18.2 million | $12.6 million |
- Q2 sales rose 3.8%; comparable sales increased 4.9%. First-half sales rose 2.3%, with comparable sales up 3.5%.
- Gross margin, including occupancy, increased to 48.3% in Q2 from 46.4%, and to 47.7% for the first half from 46.1%. Management attributed improvement to higher merchandise margins and occupancy-cost leverage.
- SG&A rose 8.3% in Q2 to $38.4 million and 6.2% for the first half to $75.5 million. First-half expense included an approximately $1.9 million increase in bonus accrual versus the prior year.
- Free cash flow, a non-GAAP measure defined as operating cash flow less capital expenditures and discretionary store asset acquisitions, was $13.4 million for the first half, versus $9.0 million. Capital expenditures were $4.8 million.
- Cash was $18.3 million at July 30, up from $4.1 million at fiscal year-end. Current assets were $125.5 million and current liabilities $51.1 million. The balance sheet showed no long-term debt; the company also reported no credit-facility borrowings.
Material changes and management commentary
- Comparable sales growth occurred despite store traffic declining 1% year over year in Q2. Management cited price increases, higher average unit retail, improved selling productivity, controlled markdowns, and inventory management.
- Q2 DXL stores reportedly delivered approximately 20% comparable-market sales improvement. The company had six DXL stores at quarter-end and opened two more in August.
- Inventory was $95.0 million, versus $94.2 million a year earlier and $92.9 million at fiscal year-end; management noted seasonal buildup ahead of fall selling.
- The company had 458 stores at quarter-end. It planned 15–16 DXL openings and 15–20 existing-store closures during FY2011, with approximately 25–30 additional DXL openings and 40–45 closures planned for FY2012.
Outlook, risks, and notable items
- FY2011 guidance: diluted EPS of $0.40–$0.45; sales of $405–$410 million, approximately 3%–4% growth; comparable-sales growth of 4.0%–4.5%; gross-margin improvement of 105–150 basis points; and SG&A growth of approximately 3% to $156 million.
- Management forecast FY2011 operating cash flow of $37.5–$40.0 million, free cash flow of $17.5–$20.0 million, capital expenditures of approximately $20 million, and year-end cash of $22–$25 million. The planned DXL website launch was delayed to the third quarter.
- A $46.7 million valuation allowance fully offset deferred tax assets of approximately $46.7 million. Management anticipated reversing a substantial portion in FY2011’s fourth quarter, contingent on sustained taxable income; it expected an approximately 40% effective tax rate after reversal.
- The $75 million asset-secured credit facility matured in November 2014, had $63.6 million of unused availability, and contained no financial covenants. Outstanding letters of credit totaled $11.5 million.
- Management cited retail seasonality, weak traffic, execution of the DXL expansion and website launch, and the ability to generate taxable income as relevant considerations. It said ordinary-course legal matters were not expected to materially adversely affect operations or financial position, and reported no material changes to previously disclosed risk factors.
Investor verification points
- Confirm the filing identity and period: the document is for Casual Male Retail Group, Inc., quarter ended July 30, 2011, despite the request metadata identifying Destination XL Group and 2010 Q2.
- Track comparable-sales and traffic trends, gross-margin gains, and whether SG&A growth remains within guidance.
- Assess DXL store economics, opening and closure execution, and the delayed multibrand website launch against planned capital spending.
- Monitor operating cash flow, inventory levels, credit availability, and achievement of year-end cash and free-cash-flow forecasts.
- Verify whether the anticipated deferred-tax valuation-allowance reversal occurred and how it affected reported earnings and the subsequent effective tax rate.