Destination XL Sees Some Uptick After Rough 2020

The fourth quarter was pretty dismal for Destination XL Group, but there are green shoots appearing for the men’s big and tall retailer.

In the period ended Jan. 31, the Canton, Mass.-based company said its net loss was $5.1 million, compared to a profit of $2.4 million in the prior year’s quarter. The loss for the year was also markedly higher, hitting $64.5 million versus a loss of $7.8 million in the prior year. Sales for the fourth quarter were down 23.7 percent to $100.1 million, from $131.2 million in the quarter the year before. For the year, sales dropped to $318.9 million from $474 million in fiscal 2019.

Despite the rough waters, Harvey Kanter, president and chief executive officer, remains optimistic — but acknowledged that the recovery is not going to be easy. Although comparable-store sales in November, December and January were down 41 percent, 36 percent and 34 percent, respectively, he told analysts, the slide has started to slow.

“In February our comparable-store sales were down 33 percent in fiscal 2019 and for the first two weeks of March our comparable-store sales have improved to minus 16 percent. Over the last six days, we’ve been nearly flat to 2019,” he said. “We are starting to see some of our loyal customers return for more than just underwear and activewear and work-from-home apparel — perhaps the only real thing they did need. For the first time in a long time when they have come in, we have seen a greater level of fashion selling from our older, more affluent customer and a heightened spending level. It appears to be coming back quickly, but time will tell.”

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Specifically, Kanter said that in the fourth quarter, casual sportswear and loungewear continued to drive the business while tailored clothing “remained extremely challenged. Comfort, functionality and versatility are essential features expected by our customer and are embedded in the key categories that will drive the spring sale growth,” he said. But in recent weeks, the company has seen an “uptick” in sales of tailored clothing, specifically sport coats and dress shirts.

Kanter cautioned that it “is still very early in the year and we certainly have a long way to go. But the early signals that we are seeing in 2021 are pointing toward a recovery in stores as the restrictions around gathering are eased and our customer feels more comfortable venturing out from his home. We remain cautiously optimistic and we are monitoring to see if the pent-up demand will wane or carry into summer and even the fall and winter months ahead. We do recognize that the savings rate of the U.S. consumer is up measurably and another round of stimulus checks is beginning to hit banks now. Given this conversation, the roaring ’20s and celebratory times ahead may be very real.”

But in order to capitalize on this expected uptick, DXL made a couple of moves recently to increase its liquidity and flexibility. They include raising $5 million from the sale of 11.1 million shares and refinancing a FILO term loan, which will add between $5 million and $10 million in additional funds each month of this year. Inventories are also down 17 percent from the fourth quarter of last year.

Like other retailers, DXL’s e-commerce efforts were also a “bright spot” in fiscal 2020, Kanter said, adding that online sales grew nearly 29 percent in the period to now make up over 40 percent of the total.

In addition, its mobile app grew substantially, up 212 percent in the fourth quarter. “Our focus in 2021 will continue to be delivering a differentiated user experience from the web through such features as scanning personalization and simplified checkout,” Kanter said.

That being said, Kanter admitted that “the single biggest challenge facing DXL continues to be our ability to drive meaningful traffic into our stores.” To address this “uphill battle,” he said the company is continuing to work with its landlords to “realign our occupancy costs with expected sales. We have approximately 131 stores with either a natural lease expiration or a kick-out option within the next two years. Our goal is to right-size our store portfolio, through lease negotiations or lease-term expirations, to optimize store profitability and omnichannel distribution,” he said. Peter Stratton, Jr., chief financial officer, said the company secured $10 million in rent abatements and deferments for the months the stores were closed due to the pandemic and so far has negotiated 91 lease amendments that will account for $5.2 million in savings in fiscal 2021.

Stratton also provided guidance for this year. EBITDA is projected to be $11 million to $18 million and sales $385 million to $402 million. Comparable sales overall are expected to decrease 10.8 percent to 14.8 percent from 2019 levels with store sales expected to be down 23.8 percent to 27.8 percent while the direct-to-consumer business is seen rising 26.9 percent to 30.7 percent from 2019.

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