Destination XL Sales, Profits Down, but Management Staying the Course
The challenging retail environment at the end of last year took a bite out of the business at Destination XL Group in the fourth quarter and year.
On Thursday, the Canton, Mass.-based men’s big and tall retailer reported net income for the fourth quarter of $5.2 million, compared to $8.3 million a year earlier. Results for the fourth quarter of fiscal 2023 included a pretax charge of $1.5 million, in connection with the termination of the frozen retirement plans. Adjusted earnings per share slipped to 10 cents from 12 cents. Overall sales for the period dropped 4.7 percent to $137 million from $144 million in the same period last year. Comparable-store sales in the quarter declined 10.1 percent.
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For the year, net income fell to $27.9 million from $89.1 million in fiscal 2022. The company noted that the prior year included a pretax charge of $5.7 million in connection with the termination of the frozen retirement plans as well as an income tax benefit of $31.6 million related to the release of the valuation allowance against deferred taxes. Sales fell to $522 million from $546 million the prior year. Comparable-store sales declined 4.6 percent.
“After two years of double-digit comp sales increases, a challenging apparel retail market in 2023 negatively impacted customer traffic to both our stores and website, contributing to our full-year comp sales decrease of 4.6 percent,” said Harvey Kanter, president and chief executive officer.
But despite these “consumer headwinds,” he said the company managed to deliver an adjusted earnings before interest, taxes, depreciation and amortization margin of 10.7 percent for the full year. That coupled with $60 million of cash and investments, no debt and clean inventories will allow the company to continue with its growth plans.
“Fiscal 2024 will be defined by the launch of strategic growth initiatives in marketing, store expansion, the DXL digital experience and collaborations,” Kanter said. “These initiatives are ambitious, and necessary, and will require us to make significant investments in our future. They will begin to come online in late spring and will be a catalyst for sales growth for the balance of the year. We believe that we can invest in these growth initiatives while maintaining an acceptable level of profitability and free cash flow. And, over the next five years, we expect to grow our top line significantly and, with scale, return to double-digit adjusted EBITDA margins.”
Kanter went on to detail the company’s long-range plan, which includes increasing its total marketing spending to about 7 to 7.5 percent of sales to expand its share of what he estimates is a $23 billion market of big and tall men. Stores are also being added. “Our consumer research indicates that 44 percent of big and tall men reported they do not shop with DXL because a store is not near them, while 35 percent self-reported that they do not shop with us because a store location is not conveniently near them. This past year we opened three new DXL stores, our first store openings since fiscal 2019. We plan to open an additional eight stores in fiscal 2024, with 15 new stores per year in fiscal 2025 through 2027.”
The company’s website will also be upgraded in the second half of this year, he said. In fiscal 2023, online sales were $163 million, or 31.3 percent of overall sales, compared to $170 million, or 31.1 percent, in fiscal 2022.
In the past year, DXL collaborated with a number of popular men’s brand including Untuckit, Faherty and Hugo Boss and all three will be expanded in fiscal 2024, he added.
Kanter predicted that consumer discretionary spending in fiscal 2024 will “be slow to recover given the current economic landscape caused by the past two years of elevated inflation and uncertainty over the upcoming presidential and congressional elections.” As a result, it issued guidance of a mid- to high- single-digit decrease in comparable sales through the first half of fiscal 2024, with improvement to a low- to midsingle-digit increase in comparable sales in the second half. In total, it is looking for sales of $500 million to $530 million and net income of approximately $17 million.
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