Destination XL Group’s rebound marched on in the 2022 first quarter, with sales increasing 14.5 percent to $127.7 million on net income of $13.4 million.
The “big and tall” men’s wear retailer is accomplishing this thanks to a significant shift in how it handles promotions and discounts.
“The percentage of first-quarter revenue driven by a coupon or promotion was approximately 50 percent lower than the first quarter of 2019, essentially showing that our coupon and discounting niches have been cut in half since our last normalized year,” Destination XL Group president and CEO Harvey Kanter said in a first-quarter earnings call last week
In a Nutshell: Kanter credited the return of social events such as weddings and formal occasions for bolstering the company’s tailored clothing business.
Tailored clothing “went from 12 percent of Q1 revenue last year to 18 percent of Q1 revenue this year,” Kanter said. “This growth exceeded expectations with strong growth in particular in suits and dress shirts, including fashion colors and patterns, and we are well-positioned from an inventory standpoint to capitalize on the upcoming summer.”
During fiscal 2022, Destination XL Group is planning on rebranding up to four Casual Male XL retail stores to DXL retail stores. Executive vice president and chief financial officer Peter Stratton, Jr. told Sourcing Journal last month that all the existing 51 Casual Male stores are likely to either become a DXL store or be dissolved altogether in an effort to unify the brands.
The company reiterated that it could potentially open 50 net new and relocated stores over the next three-to-five years.
Kanter also noted that ocean freight rates have dipped from their previous peaks, but still remained three to four times higher versus pre-pandemic levels.
“In regards to ground and air, rates have begun to lower, but these decreases are partially offset by rising fuel costs, which we all see consistently at the pump,” Kanter said. “Domestically, there’s also a severe shortage of both trucks and drivers, leading to further disruption for carriers that manifests itself as both delays and capacity issues.”
The CEO said the labor shortage has impacted DXL and Casual Male stores as well, where the company’s open position rate is currently at 20 percent versus the usual 10 percent.
Inventory increased approximately $96.9 million, a 9.6 percent boost from $88.4 million in the year-ago period. As of April 30, clearance inventory was 6.9 percent of total inventory, as compared to 10.1 percent on May 1, 2021.
“If we only look at what was on hand and available to sell in our stores and distribution center, we were down about 4 percent from last year,” Stratton said. “However, this was a significant improvement from the 17 percent deficit we were running just a few months ago.”
Gross margin rate was 50 percent, up 440 basis points (4.4 percentage points, from the year-ago quarter’s 45.6 percent margin. The increase was driven by a 200-basis-point (2-percentage-point) boost in merchandise margins—namely from the reduced markdowns—and a 240-basis-point (2.4-percentage-point) improvement in occupancy costs. Store closures drove approximately $900,000 in occupancy savings.
As of April 30, the company had no debt outstanding and total cash of $7.5 million, compared to total debt, net of cash, of $44.3 million at May 1, 2021. DXL also has $85 million available under its credit facility, up from the $51.1 million it had last year.
In a quarter when mass merchants and apparel retailers alike have lowered guidance due to the macro-consumer environment, which includes ongoing supply chain struggles and inflation, DXL is staying the course. The company reaffirmed its sales guidance for fiscal 2022 in a range of $510 million to $530 million, with adjusted EBITDA margin expected to be greater than 10 percent.
As compared to fiscal 2021, Destination XL Group expects gross margin for 2022 to decrease by approximately 100 basis points (1 percentage point). The decline will come from freight and raw materials costs, and markdowns being flat compared to last year.
For the year, the retailer expects capital expenditures to be approximately $10 million to $12 million as it invests in technology related to marketing and merchandising initiatives. In the call, Kanter said DXL plans to spend 6.2 percent of 2022 sales on marketing investments.
Kanter said the company is launching a customer data platform (CDP) this year to better personalize and optimize the customer journey. DXL is also revamping its loyalty program to move away from a traditional points-based to an engagement-based initiative.
Net Sales: Total sales for the first quarter were $127.7 million, up 14.5 percent from $111.5 million in the first quarter of fiscal 2021. Comparable sales for the quarter increased 19.5 percent. Comparable sales from stores improved 20.8 percent, while the direct business improved 16.7 percent.
Strong growth in store traffic fueled monthly comparable store growth of 59.5 percent in February, 9.1 percent in March and 14.4 percent in April, according to Stratton.
First-quarter direct sales totaled $39 million, or 30.6 percent of retail segment sales, as compared to $33.5 million, or 30.9 percent of retail segment sales.
All regions reported a comparable sales increase for the first quarter, with the Northeast, Florida and West Coast stores showing the strongest performance. The direct business sales increase was driven by double-digit growth from its website, an increase in online orders that originate in a store and continued growth in online marketplaces.
Wholesale revenues decreased to $0.4 million as compared to $3.1 million for the first quarter of fiscal 2021 due to exiting Amazon earlier this year.
Net Earnings: Destination XL Group’s net income for the first quarter was $13.4 million, or 20 cents per diluted share, as compared to net income of $8.7 million, or 14 cents per diluted share, in the year-ago period.
Adjusted EBITDA for the first quarter was $17.3 million, compared to $13.7 million in the first quarter of fiscal 2021.
CEO’s Take: “Through the first quarter, I’m happy to report that we have nearly eliminated promotional marketing tactics as the driving force and create sales, a drastic departure from the company that consistently featured an offer almost every single day in any email when I came aboard,” Kanter said.