Destination XL Group, Inc. (DXLG) (NASDAQ: DXLG), the largest omni-channel specialty retailer of big and tall men’s apparel, today reported operating results for the third quarter of fiscal 2016.
Third-Quarter Fiscal 2016 Highlights
Total sales increased 2.3%, inclusive of comparable sales growth of 0.9%, a 2-year stack of 5.2%
DXL retail stores delivered positive 2.3% comparable sales growth, a 2-year stack of 11.5%
Net loss narrowed to $(4.5) million, compared with $(5.5) million in the prior-year quarter
EBITDA increased 57% to $3.9 million from $2.5 million in the prior-year quarter
“We delivered another quarter of positive comparable sales growth,” said President and CEO David Levin. “Despite a very difficult retail environment, our DXL stores continue to perform, registering comparable sales growth of 2.3%, driven by increases in both transactions and average spend per guest. We also continue to grow EBITDA, delivering a year-over-year improvement of 57%. Heading into the fourth quarter, our inventories are in excellent shape, and we are well positioned to capitalize on the coming holiday shopping season,” Levin said.
“The DXL transformation remains on track, as we opened 13 new stores in the third quarter. We continue to see very strong cash-on-cash returns from our new DXL stores, and we are very excited to have reached a major milestone with the opening of our 200th DXL store, in Oxnard, California.
“We continually look to maximize the return we achieve on every dollar we spend, and that scrutiny is heightened in a difficult retail environment such as the one we are experiencing. Because of this disciplined approach, we have decided not to spend advertising dollars on television in the fourth quarter. Our marketing campaign in the fourth quarter will consist of radio, digital and social media, and we will continue to evaluate the use of television in the future. The lack of television exposure, coupled with the delayed arrival of cold weather, is leading us to a more cautious outlook for sales and EBITDA. However, we are still maintaining our adjusted earnings guidance of breakeven to $(0.05) per share,” Levin concluded.
Third-Quarter 2016 Results
For the third quarter of fiscal 2016, total sales rose 2.3% to $101.9 million from $99.6 million in the third quarter of fiscal 2015. The increase of $2.3 million in total sales was primarily driven by a comparable sales increase of $1.1 million, or 2.3%, from the Company’s DXL stores. On a comparable basis, total transactions in the Company’s DXL stores were up 1.8% over the prior-year’s third quarter. Sales per square foot for the DXL retail stores, on a rolling 12-month basis, increased to $182 from $174 for the prior-year quarter.
For the third quarter of fiscal 2016, gross margin, inclusive of occupancy costs, was 44.4%, compared with gross margin of 45.0% for the third quarter of fiscal 2015. The decrease of 60 basis points was the result of a 30-basis-point decrease in merchandise margin and a 30-basis-point increase in occupancy costs as a percentage of total sales. The decrease in merchandise margin was primarily due to a shift in the timing of clearance markdowns. The increase in occupancy costs was due to occupancy expense increasing at a greater percentage than sales. On a dollar basis, occupancy costs for the third quarter increased approximately 4.0% over the prior-year’s third quarter, primarily as a result of an increase in total square footage.
Selling, General & Administrative
SG&A expenses for the third quarter of fiscal 2016 were 40.6% of sales, compared with 42.6% in the third quarter of fiscal 2015. On a dollar basis, SG&A expense declined $1.0 million from the same quarter of the prior year, primarily due to decreases in advertising costs and incentive accruals, which were partially offset by increased store payroll and medical benefits costs.
Net loss for the third quarter of fiscal 2016 was $(4.5) million, or $(0.09) per diluted share, compared with a net loss of $(5.5) million, or $(0.11) per diluted share, for the third quarter of fiscal 2015. On a non-GAAP basis, assuming a normalized tax rate of 40%, adjusted net loss for the third quarter of fiscal 2016 and fiscal 2015 was $(0.05) and $(0.07) per diluted share, respectively.
Earnings before interest, taxes, depreciation and amortization (EBITDA), a non-GAAP measure, for the third quarter of fiscal 2016 were $3.9 million, compared with $2.5 million for the third quarter of fiscal 2015. The improvement was driven by an increase in sales from the same quarter of the prior year and a decrease in SG&A expenses.
Cash Flow provided by operations for the first nine months of fiscal 2016 was $8.1 million, compared with cash flow used for operations of $(5.0) million for the same period of fiscal 2015. Capital expenditures for the first nine months of fiscal 2016 of $21.8 million consisted of $16.0 million for new DXL stores and $5.8 million for infrastructure projects. Capital expenditures for the first nine months of fiscal 2015 of $25.3 million consisted of $17.3 million for new DXL stores and $8.1 million for infrastructure projects. Free cash flow, before DXL capital expenditures, a non-GAAP measure, improved $15.4 million from the first nine months of fiscal 2015.
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