Cutting back on promotions has helped Destination XL Group buck the larger retail trend and led the company to improved profits and sales in the first quarter.
The Canton, Mass.-based men’s big and tall retailer on Thursday reported net income of $13.4 million, or 20 cents per diluted share, as compared to $8.7 million, or 14 cents a share in the first quarter of fiscal 20212. Adjusted EBITDA, a non-GAAP measure, for the first quarter of fiscal 2022 was $17.3 million, compared to $13.7 million for the first quarter of fiscal 2021.
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Comparable-store sales for the period rose 19.5 percent, while total sales increased 14.5 percent, to $127.7 million from $111.5 million in the first quarter of 2021.
Harvey Kanter, president and chief executive officer, said the solid results were achieved “while virtually eliminating public promotional offers which contributed to margin improvement. Since late in 2020, we have been pivoting away from a legacy strategy of frequent and deep merchandise promotions. Today, we compete on the promise of superior fit, assortment and experience. That is what we offer to big [and] tall men, and we believe that our results show that this message is clearly resonating with him.”
He noted that sales driven by coupons or promotions were cut in half from the first quarter of 2019.
“We believe that our fortress balance sheet, no debt and access to liquidity, position DXL for future growth,” Kanter continued. “Given the financial performance in the first quarter, we continue to be confident in our sales outlook for the year and are trending toward the high-end of our range. However, the current state of the U.S. economy with inflation, rising interest rates, supply chain, labor and staffing challenges, combined with the pandemic, the war in Ukraine, market volatility and uncertainty in consumer confidence, give us reason to remain vigilant and circumspect.”
The company said the first-quarter sales gains were driven by an increase in store traffic as well as dollars spent per transaction. The Northeast, Florida and the West Coast were the strongest regions, with a 20.8 percent comparable sales increase. The direct business was strong as well, DXL said, although growth was not as fast as in the past. Since fiscal 2019, the company has experienced a 40 percent uptick in direct sales, but in the first quarter of this year, that normalized to 16.7 percent increase in comparable-store sales, driven by double-digit growth on the website, an increase in online orders that were placed in stores and growth in other online marketplaces.
As reported, DXL ended its relationship with Amazon as its primary wholesale customer, so revenues in this category fell 0.4 percent to $3.1 million in the first quarter of last year. But it still has product on the Amazon’s marketplace site as well as on Target Plus, which has helped the company reach the “single greatest new acquisition levels versus any previous first quarter for at least the last five years,” Kanter said.
Turning to product, Kanter said sportswear was the strongest category in the period, both private label and collection brands despite the fact that supply chain challenges caused delays in several key designer collections. He noted that while ocean freight rates have gone down from their previous peak, they’re still three to four times higher than pre-pandemic levels. Ground and air rates have also begun to drop, he said, but these savings were partially offset by rising fuel costs. And a “severe shortage” of trucks and drivers is also leading to delays and capacity issues, he added.
Another challenge has been the inability to find labor to fill open positions, a number that currently sits at 20 percent. “There’s an acute battle for talent,” he said.
But despite these issues, Kanter and the DXL remain upbeat about the future and reaffirmed sales guidance for fiscal 2022 of $510 million to $530 million with adjusted EBITDA margin for fiscal 2022 is expected to be greater than 10 percent.
DXL operates 228 stores and plans to open or relocate up to 50 stores over the next three to five years.
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