CANTON, Mass., Aug. 27, 2020 (GLOBE NEWSWIRE) -- Destination XL Group, Inc. (NASDAQ: DXLG), the largest omni-channel specialty retailer of big and tall men's clothing, today reported operating results for the second quarter of fiscal 2020 and provided a business update with respect to the COVID-19 pandemic.

Management’s Response to COVID-19

“Our second quarter performance was better than we anticipated, driven by our DXL.com website’s 69% growth and opening stores sooner than initially expected. Although this performance permits us to be cautiously optimistic, we remain exposed to the ongoing challenges brought on by the COVID-19 pandemic. Our stores began to reopen in late April and, by the end of June, all of our retail locations were open. As you will hear me say often, we are striving to maintain a balance between short-term performance and protecting the long-term viability of the Company. During the quarter, we saw gradual improvements in store sales despite curtailed store operating hours. The strong growth in our direct business is a direct outcome of the digital strategies we have implemented and consumers’ shift in shopping preferences further grow in response to COVID-19. Given this increased demand, we have been fortunate that our digital strategies were well-defined and the distribution center has been able to operate without any disruption. We also saw positive growth in our wholesale business during the second quarter, and were quick to mobilize the sourcing and manufacture of protective masks,” said Harvey Kanter, President and Chief Executive Officer.

Kanter continued, “We continued to be very proactive during the second quarter in managing our liquidity. We have worked very closely with our landlords, who have been great partners in helping us make short-term accommodations to manage our cash flow while our stores were closed. We also restructured our business to reduce operating costs, where possible, to adjust to the sales decline. The majority of our associates were on furlough through the end of the first quarter and we began to gradually bring them back this quarter as our stores reopened. We did our best to protect our associates during furlough, extending benefits as long as we could. However, there were approximately 430 associates who we were not able to bring back, mostly store personnel, in order to align our field organization with the reduced sales base.

At the end of the second quarter of fiscal 2020, we had a cash balance of $20.4 million, total debt of $81.4 million and remaining availability under our credit facility of $12.4 million. Our focus on cash has been relentless. Over the past two quarters, we have worked with our vendors on extended payment terms, including entering into short-term promissory terms with vendors, and rent concessions with the majority of our landlords. We have a cash management plan for the next 12 months and we believe that we have sufficient liquidity to navigate our working capital needs given no further significant shutdowns of the economy,” Mr. Kanter concluded.

Second Quarter Financial Highlights

• Total sales for the second quarter were $76.4 million, down 38.0% from $123.2 million in the prior-year second quarter.
• Cash Flow from operations of ($9.0) million as compared to the prior year of $0.9 million. Free Cash Flow was ($11.1) million as compared to ($6.7) million last year.
• Net loss for the second quarter was $(10.7) million as compared to net income of $0.0 million in the prior year’s second quarter.
• Adjusted EBITDA for the second quarter was $(4.3) million compared to $7.1 million in the prior-year quarter.
• At August 1, 2020, cash balance of $20.4 million, total debt of $81.4 million and remaining availability under our credit facility of $12.4 million.

Second Quarter Results

Sales

Total sales for the second quarter of fiscal 2020 decreased 38.0% to $76.4 million from $123.2 million in the second quarter of fiscal 2019. We were able to reopen our retail stores sooner than expected, and by the end of June, all locations had been reopened. Given the nature of the pandemic, we experienced headwinds due to the virus during the quarter in critically important states which produce higher than average sales. Because our stores were closed temporarily during much of the second quarter of fiscal 2020 and continue to operate with reduced hours, we do not believe a discussion of comparable sales is a meaningful metric at this time. We continued to see a material shift to online shopping during the second quarter and expect to see a similar trend through the remainder of fiscal 2020. Overall sales in the second quarter were driven by a 69% increase in our dxl.com business, which brought total direct sales penetration up to 46.1% of total retail sales.

Our wholesale business contributed $5.0 million in sales during the second quarter, as compared to $2.7 million in the prior year, driven primarily by the sale of $4.1 million in protective masks.

Gross Margin

For the second quarter of fiscal 2020, our gross margin rate, inclusive of occupancy costs, was 28.1% as compared to a gross margin rate of 44.3% for the second quarter of fiscal 2019. Our gross margin rate declined 5.1% from the deleveraging in occupancy costs and a decrease of 11.1% in merchandise margins. We remained highly promotional during the first half of the second quarter in order to reduce inventories and drive our on-line business, but began to scale back after Father’s Day. Our gross margin improved significantly post Father’s Day, where we saw a merchandise margin improvement of 1260 basis points for the month of July, as compared to May. Because of the growth in our direct channel and free shipping promotions, shipping costs for the second quarter increased over the prior year.

Selling, General & Administrative

As a percentage of sales, SG&A (selling, general and administrative) expenses for the second quarter of fiscal 2020 were 33.7% as compared to 38.5% for the second quarter of fiscal 2019. On a dollar basis, SG&A decreased by $21.7 million, or 45.7%, as compared to the second quarter of fiscal 2019. We took several steps to reduce our operating costs while our stores were closed, including the furlough of our store associates and certain corporate associates, reduced marketing costs, a temporary salary reduction of 10-20% for management, and the non-employee directors voluntarily suspended their compensation for the second quarter. As we reopened stores during the second quarter, our operating costs were realigned with the expected sales levels and associates were brought back on a staggered schedule. We continue to assess and rationalize our entire SG&A cost structure. Given the changes to our business as a result of this pandemic, we are restructuring various areas to ensure that we can operate most efficiently. This included the elimination of approximately 34 corporate positions in the first quarter of fiscal 2020 and an additional 430 store associates in the second quarter. With the reduced sales levels and store traffic, our stores are operating at minimal staffing levels and reduced operating hours.

Management views SG&A expenses through two primary cost centers: Customer Facing Costs and Corporate Support Costs. Customer Facing Costs, which include store payroll, marketing and other store operating costs, represented 15.8% of sales in the second quarter of fiscal 2020 as compared to 23.9% of sales in the second quarter of last year. Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 17.9% of sales in the second quarter of fiscal 2020 compared to 14.6% of sales in the second quarter of last year.

Net Loss

For the second quarter of fiscal 2020, we had a net loss of $(10.7) million, or $(0.21) per diluted share, compared with a net income of $0.0 million, or $0.00 per diluted share, for the second quarter of fiscal 2019.

On a non-GAAP basis, adjusting for a normalized tax rate of 26% for both periods, the adjusted net loss for the second quarter of fiscal 2020 was ($0.15) per diluted share, as compared to an adjusted net income of $0.00 per diluted share for the second quarter of fiscal 2019.

Adjusted EBITDA

Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), a non-GAAP measure, for the second quarter of fiscal 2020 were $(4.3) million, compared to $7.1 million for the second quarter of fiscal 2019.

Cash Flow

Cash flow from operations for the first six months of fiscal 2020 was $(9.0) million as compared to $0.9 million for the first six months of fiscal 2019 and free cash flow was $(11.1) million for the first six months of fiscal 2020 as compared to $(6.7) million for the first six months of fiscal 2019.

Preserving liquidity was our primary financial goal this quarter. We have eliminated costs where possible and have reduced the majority of our capital spending, unless such spending is necessary to our immediate business needs. Our capital expenditures for the first six months of fiscal 2020 were $2.1 million as compared to $7.6 million for the same period last year.

E-Commerce Information

The Company distributes its licensed branded and private label products directly to consumers through its stores, website and third-party marketplaces. E-commerce sales, which we also refer to as direct sales, are defined as sales that originate online, whether through our website, at the store level or through a third-party marketplace. For the second quarter of fiscal 2020, our direct sales increased by $7.6 million to 46.1% of retail segment sales as compared to 21.1% for the second quarter of fiscal 2019. The increase in sales growth and penetration was driven by a 69% increase in sales on our own website at DXL.com. Even though all of our stores had reopened by the end of June 2020, store traffic has been slow to rebound and we continue to see our e-commerce business playing a vital role in enabling us to continue to engage with our customers. Our direct business will be a critical component of how we navigate through the remainder of fiscal 2020 and beyond.

About Destination XL Group, Inc.

Destination XL Group, Inc. is the largest retailer of men’s clothing in sizes XL and up, with operations throughout the United States as well as in Toronto, Canada. In addition to DXL Big + Tall retail and outlet stores, subsidiaries of Destination XL Group, Inc. also operate Casual Male XL retail and outlet stores, and e-commerce sites, including DXL.com. DXL.com offers a multi-channel solution similar to the DXL store experience with the most extensive selection of online products available anywhere for Big + Tall men. The Company is headquartered in Canton, Massachusetts, and its common stock is listed on the NASDAQ Global Market under the symbol "DXLG." For more information, please visit the Company's investor relations website: https://investor.dxl.com.