CANTON, Mass., Nov. 20, 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 third quarter of fiscal 2020 and provided a business update with respect to the COVID-19 pandemic.

Third Quarter Financial Highlights

• Total sales for the third quarter were $85.2 million, down 20.1% from $106.6 million in the prior-year third quarter.
• Cash Flow from operations for the first nine months of ($8.6) million as compared to the prior year of $(14.4) million. Free Cash Flow was ($11.6) million as compared to ($25.4) million last year.
• Net loss for the third quarter was $(7.0) million as compared to a net loss of $(7.2) million in the prior year’s third quarter.
• Adjusted EBITDA for the third quarter was $(1.7) million compared to $1.7 million in the prior-year quarter.
• At October 31, 2020, cash balance of $21.4 million, total debt of $82.9 million and remaining availability under our credit facility of $13.5 million.

Management’s Comments

“For the past eight months we’ve been pivoting to position DXL for the long-term recovery from COVID-19 and future growth. In the third quarter, comparable sales which were down 20.5% improved from the second quarter, when our comparable sales were down 38.6%. Our store performance has improved each month from June through September with improvements in both traffic and conversion. In Direct, DXL.com was up 28.4%, with total Direct up 18.2% and total Direct penetration at 33.4%,” said Harvey Kanter, President and Chief Executive Officer.

“Despite the unrelenting impact of COVID-19 on the apparel industry, we believe our actions give DXL the strongest opportunity to succeed. Our digital transformation efforts, begun in mid-2019, have measurably impacted our ability to serve our core consumer in this volatile environment and provides us with even greater opportunity to navigate changes in consumer behavior. The fact that so many of us are staying close to home and avoiding large social gatherings has resulted in a solid improvement in many of our core and basic categories. Our customers still need to replenish basics and, in time, we know he will also need to update his wardrobe. We expect our 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.”

Kanter continued, “We recently completed our second corporate restructuring in the past 9 months to provide the Company with more financial flexibility. Together, the two restructurings have reduced our corporate workforce by 29% and our store workforce by 54% since the beginning of the year. We have also eliminated professional services and certain marketing costs 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.

“From a liquidity perspective, we had a cash balance of $21.4 million and total debt of $82.9 million at the end of the third quarter. Total debt, net of cash, improved to $61.5 million compared to $77.5 million in the third quarter last year. Our focus on cash is relentless. With the significant steps we have taken to align our SG&A costs, we are now turning our attention to our landlord community in an attempt to right-size our lease structure. We have a cash management plan and we believe that we have 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,” Mr. Kanter concluded.

Third Quarter Results

Sales

Total sales for the third quarter of fiscal 2020 decreased 20.1% to $85.2 million from $106.6 million in the third quarter of fiscal 2019. Comparable sales for the quarter were down 20.5% to last year. The 20.5% decrease in comparable sales was primarily driven by our stores, which were down 31.5% from the prior year’s third quarter, partially offset by our direct business, which was up 18.2%. The increase in our direct business was principally due to our DXL.com e-commerce site, which had a sales increase of 28.4%.

All of our stores had reopened by the end of June, and we were seeing month-over-month improvements in both traffic and conversion through September. However, with the resurgence of the virus, fires on the west coast and distractions from the election, our sales momentum slowed in October.

Our wholesale business contributed $5.0 million in sales during the third quarter, as compared to $2.9 million in the prior year, principally due to Amazon Essentials. We saw demand for masks, which was significant for us in the second quarter, drop during the third quarter.

Gross Margin

For the third quarter of fiscal 2020, our gross margin rate, inclusive of occupancy costs, was 36.5% as compared to a gross margin rate of 41.1% for the third quarter of fiscal 2019. Our gross margin rate declined 4.6% from a decrease of 2.8% in merchandise margins and a decrease of 1.8% due to the deleveraging in occupancy costs. Merchandise margins have improved from the second quarter of fiscal 2020, when merchandise margins were down 11.1% as we were highly promotional. During the third quarter, we made progress with improving our markdowns by focusing on more targeted promotions with a greater gross margin impact as well as improving on our clearance markdowns. Because of the growth in our direct channel and free shipping promotions, shipping costs continued to increase over the prior year and are expected to remain elevated in the fourth quarter.

Selling, General & Administrative

As a percentage of sales, SG&A (selling, general and administrative) expenses for the third quarter of fiscal 2020 were 38.5% as compared to 39.5% for the third quarter of fiscal 2019. On a dollar basis, SG&A decreased by $9.3 million, or 22.1%, as compared to the third quarter of fiscal 2019. We continue to take proactive measures to reduce our operating costs given the lower sales base. The decrease in the third quarter was primarily driven by a decrease in store and corporate payroll and cost reduction efforts throughout all areas of our business.

Subsequent to the end of the third quarter on November 2, 2020, we implemented an additional corporate restructuring to realign our SG&A costs with our sales levels. The restructuring included the termination of certain service agreements, the elimination of certain professional services and the elimination of an additional 45 positions in the corporate workforce. These additional actions are expected to result in annualized savings of approximately $9.7 million. This year, we have reduced our field organization by approximately 54% and our corporate workforce by 29%. With the reduced sales levels and store traffic, our stores are operating at minimal staffing levels and reduced operating hours. The Company expects to incur an aggregate charge of approximately $0.5 million in the fourth quarter of fiscal 2020 related to employee severance and one-time termination benefits.

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 19.2% of sales in the third quarter of fiscal 2020 as compared to 22.0% of sales in the third quarter of last year. Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 19.3% of sales in the third quarter of fiscal 2020 compared to 17.5% of sales in the third quarter of last year.

Impairment of Assets

During the third quarter of fiscal 2020, the Company recorded a $1.2 million non-cash gain on the reduction of its operating lease liability in connection with its decision to close certain retail stores, which resulted in a revaluation of the lease liability. Approximately $1.1 million of this non-cash gain, related to leases where the right-of-use assets had previously been impaired, has been recorded as a reduction of the previously recorded impairment and is included in the Impairment of Assets line of the Consolidated Statement of Operations for the three and nine months ended October 31, 2020. The remaining gain of $0.1 million is included as a reduction in store occupancy costs and is reflected in the Cost of Goods Sold, Including Occupancy Costs on the Consolidated Statement of Operations for the three and nine months ended October 31, 2020.

Net Loss

For the third quarter of fiscal 2020, we had a net loss of $(7.0) million, or $(0.14) per diluted share, compared with a net loss of $(7.2) million, or $(0.14) per diluted share, for the third 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 third quarter of fiscal 2020 was ($0.12) per diluted share, as compared to an adjusted net loss of ($0.08) per diluted share for the third quarter of fiscal 2019.

Adjusted EBITDA

Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), a non-GAAP measure, for the third quarter of fiscal 2020 were $(1.7) million, compared to $1.7 million for the third quarter of fiscal 2019.

Cash Flow

Cash flow from operations for the first nine months of fiscal 2020 was $(8.6) million as compared to $(14.4) million for the first nine months of fiscal 2019 and free cash flow was $(11.6) million for the first nine months of fiscal 2020 as compared to $(25.4) million for the first nine months of fiscal 2019.

Continuing to manage and preserve liquidity has been a primary financial goal this quarter. We have eliminated costs where possible and have reduced the majority of our capital spending, except such spending necessary to our immediate business needs. Our capital expenditures for the first nine months of fiscal 2020 were $2.9 million as compared to $11.0 million for the same period last year.

Of the 316 stores in our portfolio as of October 31, 2020, 52 stores are controlled by lease agreements that have a natural expiration or kick-out option by the end of fiscal 2021; 44 stores are controlled by lease agreements that have a natural expiration or kick-out option in fiscal 2022; and 220 stores are controlled by lease agreements that have a natural expiration or kick-out option in fiscal 2023 or later. We review store leases on a case-by-case basis and will make decisions to renew or terminate leases based on specific store performance and their overall strategic importance to the brand.

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 third quarter of fiscal 2020, our direct sales increased by $4.1 million to 33.4% of retail segment sales as compared to 21.9% for the third quarter of fiscal 2019. The increase in sales growth and penetration was driven by a 28.4% increase in sales on our own website at DXL.com. Store traffic during the third quarter of fiscal 2020 has been slow to rebound and with the resurgence of the virus in much of the country, store traffic may continue to be down. As a result, 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 Capital Market under the symbol "DXLG." For more information, please visit the Company's investor relations website: https://investor.dxl.com.