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Destination XL (DXLG) - 2025 Q2 - Quarterly Results
Destination XL Destination XL (US:DXLG)2024-08-29 11:17

Financial Highlights and Outlook Second Quarter Financial Highlights Destination XL Group reported a significant downturn in Q2 fiscal 2024, with sales and comparable sales down 10.9%, net income per diluted share at $0.04, and Adjusted EBITDA at $6.5 million Q2 Fiscal 2024 vs. Q2 Fiscal 2023 Key Metrics | Metric | Q2 Fiscal 2024 | Q2 Fiscal 2023 | Change | | :--- | :--- | :--- | :--- | | Total Sales | $124.8 million | $140.0 million | -10.9% | | Comparable Sales | -10.9% | N/A | -10.9% | | Net Income per Diluted Share | $0.04 | $0.18 | -77.8% | | Adjusted EBITDA | $6.5 million | $22.9 million | -71.6% | | Adjusted EBITDA Margin | 5.2% | 16.4% | -1120 bps | | Total Cash and Investments | $63.2 million | $62.8 million | +0.6% | | Debt | $0 | $0 | No Change | Fiscal 2024 Financial Outlook The company revised its full-year fiscal 2024 guidance downwards, projecting sales between $470 million and $490 million, comparable sales decrease of 6% to 10%, and an adjusted EBITDA margin of approximately 6% Revised Fiscal 2024 Guidance | Metric | Previous Guidance | Revised Guidance | | :--- | :--- | :--- | | Sales | $500 million | $470M - $490M | | Comparable Sales | N/A | -6% to -10% | | Adjusted EBITDA Margin | 7% | ~6% | Fiscal 2024 Forecast (Mid-point of Guidance) | Metric | Projected Value | | :--- | :--- | | Sales | $480.0 million | | Net Income (GAAP) | $10.9 million | | Net Income per Diluted Share | $0.19 | | Adjusted EBITDA (Non-GAAP) | $28.8 million | | Adjusted EBITDA Margin (Non-GAAP) | 6.0% | Management Commentary and Strategy CEO's Comments on Performance and Strategy Management attributes weak Q2 performance to a challenging retail market with inflationary pressures, and is responding by shifting marketing, managing expenses, and slowing new store rollout for 2025 to preserve capital - Q2 results were negatively impacted by a challenging retail environment, with reduced foot traffic and lower direct business conversion as customers faced inflationary pressures3 - The company is pivoting its strategy in response to market headwinds3 - Shifting marketing spend from the brand campaign to channels with better short-term traffic generation - Slowing the new store rollout plan for 2025 from 15 to 10 stores to lower capital expenditures - Prioritizing balance sheet strength, profitable sales, and free cash flow generation Progress on Growth Initiatives The company reports positive progress on long-term growth strategies, including a well-tested brand campaign, new store openings, e-commerce platform upgrade, and successful Nordstrom digital marketplace collaboration - Marketing & Brand Building: A new brand campaign in three test markets yielded positive results in traffic and customer acquisition, but the fall campaign will be pivoted to more traditional marketing channels due to current market conditions4 - Store Development: Three new stores have opened in 2024, with five more expected this year, however, the 2025 plan is being scaled back from 15 to 10 new stores5 - New Website Platform: The transition to a new e-commerce platform is underway, with the final phase expected to be completed in January 20255 - Alliances & Collaborations: The merchandise launch on Nordstrom's digital marketplace has been successful, and the company is looking to expand the product offering6 Detailed Financial Performance (Q2 2024) Sales Total sales for Q2 fiscal 2024 decreased by 10.9% to $124.8 million, driven by a 10.9% drop in comparable sales, with store comparable sales down 10.0% and direct business comparable sales down 12.8% Q2 2024 Sales Performance | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Total Sales | $124.8M | $140.0M | -10.9% | | Comparable Sales | -10.9% | N/A | -10.9% | | - Store Comps | -10.0% | N/A | -10.0% | | - Direct Comps | -12.8% | N/A | -12.8% | Gross Margin The gross margin rate for Q2 2024 decreased by 210 basis points to 48.2%, primarily due to deleveraging of occupancy costs on lower sales, while merchandise margin remained flat - The gross margin rate fell by 210 basis points, driven by higher occupancy costs as a percentage of sales8 - Merchandise margin was flat compared to the prior year8 Selling, General & Administrative (SG&A) SG&A expenses for Q2 2024 increased by $6.2 million to 43.0% of sales, primarily due to higher marketing costs, which rose to 8.8% of sales Q2 SG&A Expense Analysis | Metric | Q2 Fiscal 2024 | Q2 Fiscal 2023 | | :--- | :--- | :--- | | SG&A Expenses | $53.7M | $47.4M | | SG&A as % of Sales | 43.0% | 33.9% | | Marketing Costs as % of Sales | 8.8% | 5.0% | Net Income Net income for Q2 fiscal 2024 significantly decreased to $2.4 million, or $0.04 per diluted share, from $11.6 million or $0.18 per diluted share in Q2 fiscal 2023 Q2 Net Income Comparison | Metric | Q2 Fiscal 2024 | Q2 Fiscal 2023 | | :--- | :--- | :--- | | Net Income | $2.4 million | $11.6 million | | Diluted EPS | $0.04 | $0.18 | Adjusted EBITDA Adjusted EBITDA for Q2 fiscal 2024 was $6.5 million, a substantial decline from $22.9 million in the prior year - Adjusted EBITDA for Q2 2024 was $6.5 million, compared to $22.9 million for Q2 202313 Financial Position and Liquidity Cash Flow Cash flow from operations for the first six months of fiscal 2024 was $16.0 million, with free cash flow significantly decreasing to $3.2 million due to lower earnings and increased capital expenditures Free Cash Flow (First Six Months) | (in millions) | Six Months Ended Aug 3, 2024 | Six Months Ended Jul 29, 2023 | | :--- | :--- | :--- | | Cash flow from operating activities | $16.0 | $26.2 | | Capital expenditures (excl. store dev) | ($7.6) | ($3.9) | | Capital expenditures for store dev | ($5.2) | ($0.8) | | Free Cash Flow (non-GAAP) | $3.2 | $21.6 | Balance Sheet & Liquidity As of August 3, 2024, the company maintained a strong liquidity position with $63.2 million in cash and investments and no debt, while actively managing inventory down by $8.9 million to $78.6 million - The company held $63.2 million in cash and investments with no debt as of August 3, 202415 - Inventory decreased by $8.9 million to $78.6 million compared to the prior year, reflecting proactive management16 - Availability under the credit facility was $69.9 million15 Operational Information Retail Store Information As of August 3, 2024, the company operated 284 stores, with two new DXL stores opened in H1 2024, six more planned for H2, and the 2025 new store plan reduced from 15 to 10 Store Count as of August 3, 2024 | Store Type | of Stores | | :--- | :--- | | DXL retail | 233 | | DXL outlets | 15 | | CMXL retail | 17 | | CMXL outlets | 19 | | Total | 284 | - The company expects to open six additional DXL stores in the second half of fiscal 202417 - The plan for fiscal 2025 has been revised down to 10 new stores from a previous estimate of 1517 Digital Commerce Information Digital commerce sales in Q2 2024 were $37.0 million, representing 29.6% of total retail segment sales, a decrease from $42.6 million or 30.4% in the prior year Q2 Digital Commerce Sales | Metric | Q2 Fiscal 2024 | Q2 Fiscal 2023 | | :--- | :--- | :--- | | Direct Sales | $37.0 million | $42.6 million | | % of Retail Segment Sales | 29.6% | 30.4% | Appendices Non-GAAP Measures This section explains the company's use of non-GAAP financial measures, including Adjusted EBITDA and Free Cash Flow, providing detailed reconciliations to their most comparable GAAP counterparts - The company uses non-GAAP measures like Adjusted EBITDA and Free Cash Flow to help investors evaluate performance, profitability, and liquidity212324 GAAP to Non-GAAP Reconciliation of Adjusted EBITDA (Q2) | (in millions) | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Net income (GAAP) | $2.4 | $11.6 | | Add back: Loss on retirement plans | — | $4.2 | | Add back: Provision for income taxes | $1.3 | $4.2 | | Add back: Interest income, net | ($0.6) | ($0.5) | | Add back: Depreciation and amortization | $3.4 | $3.5 | | Adjusted EBITDA (non-GAAP) | $6.5 | $22.9 | Consolidated Financial Statements This section presents unaudited Consolidated Statements of Operations and Condensed Consolidated Balance Sheets, providing detailed financial figures for the three and six-month periods ending August 3, 2024, and key balance sheet data Consolidated Statements of Operations (Three Months Ended) | (in thousands) | August 3, 2024 | July 29, 2023 | | :--- | :--- | :--- | | Sales | $124,820 | $140,043 | | Gross Profit | $60,171 | $70,379 | | Operating Income | $3,124 | $19,465 | | Net Income | $2,383 | $11,633 | Condensed Consolidated Balance Sheet Highlights | (in thousands) | August 3, 2024 | July 29, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $21,475 | $19,246 | | Inventories | $78,612 | $87,532 | | Total Assets | $383,768 | $351,960 | | Total Liabilities | $226,814 | $201,860 | | Total Stockholders' Equity | $156,954 | $150,100 | Forward-Looking Statements This section includes a standard safe harbor statement regarding forward-looking statements on fiscal 2024 guidance and strategic initiatives, cautioning that actual results may differ due to various risks and uncertainties - The report contains forward-looking statements regarding fiscal 2024 guidance, strategic plans, store development, and other future expectations26 - These statements are subject to risks and uncertainties, including consumer spending habits, inflation, global conflicts, and the ability to execute on strategic plans26 - Readers are advised to consult SEC filings for a full list of risks26