Updated 4:05 p.m ET March 20
Destination XL Group slipped into the red in the fourth quarter as lower traffic levels in its stores and lower conversion rates online took a bite of its business.
The men’s big and tall retailer on Thursday reported a net loss of $1.3 million, or 2 cents a diluted share, in the quarter, compared to net income of $5.2 million, or 8 cents a diluted share, in the fourth quarter of fiscal 2023.
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Total sales were down 13.1 percent to $119.2 million from $137.1 million in the prior year and comparable-store sales fell 8.7 percent from the fourth quarter of 2023. The company said sales in its stores were down 6.7 percent and 12.7 percent in its direct business. Comparable sales were down 11.8 percent in November, down 4.4 percent in December and down 13.3 percent in January. The improvement in comparable sales in December was driven by targeted promotional offers that ran during the holiday period, the retailer said.
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“Our sales results reflect a difficult year for the men’s apparel sector where DXL has been challenged by lower traffic levels to our stores and lower conversion online,” said Harvey Kanter, president and chief executive officer. “Men’s retail remains volatile, and we believe the big and tall consumer cut back on spending for himself in fiscal 2024. Despite this challenge, we maintained a strong operating regimen with our merchandise margin and controlled operating expenses to drive positive net earnings, positive free cash flow, and an adjusted EBITDA margin of 4.3 percent. Our balance sheet is solid with a healthy inventory position, no debt, and $48.4 million of cash and investments.”
Kanter added that last year, the company conducted consumer research to explore brand awareness, trends and the impact of the popular weight-loss drugs on its target market, the latter of which can be a double-edged sword. “We found that many weight loss drug users feel more confident with new body shapes and are excited to try new styles and sizes and he is inclined to shop more frequently to replace items as his size changes,” Kanter said during an analyst call. “Conversely, our research does note that some customers reported they will delay purchases until they achieve their weight loss goal.”
Turning to its brick-and-mortar presence, last year the company opened seven stores, upgraded its website and introduced an improved customer rewards program which are expected to help drive sales in the future. Kanter said during the call that the company believes the market can support another 50 DXL stores and it is planning to open another eight units in 2025: one has opened already, four will open in the first half and the remainder in the late summer or early fall.
Looking ahead, Kanter said that while comp-store sales were down 12.5 percent in the first six weeks of this year, he is expecting improvement from a low-double-digit negative in the first quarter, to single-digit negative in the second quarter and a return to a positive comp result in the second half of the year “due to a combination of our strategic initiatives, modest improvement in macroeconomic trends, and easier comp comparisons as we move through fiscal 2025.” Even so, the company declined to provide sales and earnings guidance for fiscal 2025.
Kanter said the retailer will remain focused this year on “executing our strategic plan, while delivering an acceptable EBITDA margin and free cash flow. We are monitoring the emerging situation with tariffs, and we have minimal exposure in China, Mexico and Canada. Collectively, these three countries represent less than 5 percent of our own sourced product, and we expect they will impact gross margin by less than 10 basis points in 2025.”
He also stressed that despite the tough economic situation, the company believes that “chasing sales through excessive promotions in a down cycle would be counterproductive and that maintaining our operational infrastructure is crucial for long-term success.”
Interestingly, he said “low awareness” of the company creates short-term challenges to newly opened stores, but advertising can help change that. Its awareness can also be helped by the company’s wholesale deal with Nordstrom, which launched last June. Currently, 37 brands and 2,200 styles are offered on that retailer’s marketplace and the plan is to increase marketing around this initiative for 2025. Key brands include Polo and DXL’s private brands Harbor Bay and Oak Hill.
Kanter also pointed to a soon-to-be-launched exclusive collaboration with TravisMathew, a golf and lifestyle brand, for the big and tall customer that is expected to increase sales.
In the year, net income was $3.1 million, or 5 cents a diluted share, down from $27.9 million, or 43 cents, in fiscal 2023. Total sales fell to $467 million from $521.8 million the prior year and comparable-store sales were down 10.6 percent.
On Dec. 23, the retailer received a non-binding proposal from Fund 1 Investments to take the company private. Fund 1 was part of Blackstone’s 6.4 billion euro takeover of cosmetic-maker L’Occitane last year. At the time, Destination XL put out a statement that it had received the offer and its board of directors “regularly reviews opportunities to create and enhance shareholder value and will carefully review and evaluate this proposal and other strategic alternatives together with its financial and legal advisers.” A spokesperson for Destination XL declined to comment on Thursday, and Fund 1 did not respond to repeated requests for an update.
Destination XL’s stock closed down 8.7 percent to $1.85 on the Nasdaq exchange on Thursday.