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Destination XL Group Continues to Make Cuts as Struggles Remain

Destination XL Group, Inc., continues to pare costs and downsize staff as it works to navigate its way through the unrelenting pandemic.

On Friday morning, the Canton, Mass.-based men’s big and tall retailer reported a net loss in the third quarter of $7 million, slightly below the $7.2 million loss reported in the prior year’s third quarter. The company also posted a loss of $1.7 million in adjusted EBITDA for the period against a profit of $1.7 million in the prior-year quarter. Comparable-store sales fell 20.5 percent in the quarter, which represented an improvement over the second quarter, while total sales were down 20.1 percent to $85.2 million, from $106.6 million in the prior-year third quarter. However, like most other retailers, online sales on the DXL e-commerce site rose 28.4 percent in the quarter.

“For the past eight months we’ve been pivoting to position DXL for the long-term recovery from COVID-19 and future growth,” said Harvey Kanter, president and chief executive officer. Store sales in the period, he said on the earnings call, were down 31.5 percent in the period, but the company saw traffic and conversion improve each month from June through September. However, in October as the virus resurged, fires ravaged the West Coast and the election resulted in distractions, DXL saw sales momentum slow by 600 basis points across the country, Kanter said on the call.

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One bright spot did emerge in the period — e-commerce. In the quarter, direct sales on DXL.com — which includes both the company’s e-commerce site as well as external online marketplaces — were up 28.4 percent, and total direct sales increased 18.2 percent. The total penetration of direct sales now accounts for 33.4 percent of the  business, he said.

“DXL is positioned to continue benefiting from the shift online. We have flexible off-mall store base, a large and growing platform digitally and compelling and differentiated omnichannel capabilities, which should reach not only our existing base of customers but a new consumer as well,” Kanter said. “Our omnichannel customer is five times more productive than a digital-only customer and three times more productive than a store-only customer. We were pleased to see a number of our store-only customers become omnichannel customers during this time.”

Despite the success online, the company has also been working to increase its ”financial flexibility” and recently completed its second corporate restructuring in the past nine months. That has resulted in a reduction in the corporate workforce of 28 percent and the store workforce of 54 percent, or 1,078 positions, since the beginning of the year.

Specifically, on Nov. 2, the company eliminated 45 corporate positions, which is estimated to save $3.8 million on an annual basis.

In addition, certain professional services and marketing costs were also eliminated, he said, “to further right-size our cost structure. Our ability to restructure has been critical as it creates operating leverage and allows us to better withstand a decline in revenue. Reducing our cost structure and preserving our liquidity have been of paramount importance to our long-term recovery.” This move is projected to save $5.2 million annually, he said.

Kanter said the company is working actively with its landlords to “right-size the company’s occupancy costs” and most have been willing to “assist us with managing cash flow and, ultimately, the occupancy cost of our retail stores.”

In terms of merchandise, Kanter said casual sportswear and loungewear continue to outperform tailored clothing, which remains extremely challenging. Knitwear, shorts, activewear, denim, underwear and Skechers shoes are among the bestsellers.

Promotional activity was heightened in April and May in an attempt to “keep goods flowing…and cash coming into our company,” but that was pulled back to a more-targeted level in the third quarter to focus on those that positively impact gross margins.

The company also has a wholesale business primarily with Amazon Essentials, which accounted for 71 percent of the rate of last year, or $4.3 million. But Kanter is hopeful that category will grow with the launch of Goodthreads, Amazon’s upscale private brand, that he believes will represent “greater opportunity” in the future for DXL as the big and tall partner.

Looking ahead, Kanter said he expects business will “continue to be challenged until we are able to start gathering socially in larger groups again and we see an increase in demand for event-based shopping visits, but we have cautious optimism for continued improvement.”

At the end of the quarter, the company had a cash balance of $21.4 million and total debt of $82.9 million, which Kanter said represents “sufficient liquidity to navigate our working capital needs for the next 12 months without additional financing and assuming no further significant shutdowns of the economy.”

At the end of the quarter, DXL operated 316 stores.

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