Destination XL Group, the parent of “big and tall” men’s wear and apparel retailers DXL and Casual Male XL, saw total sales reach $138.6 million, up 81 percent from $76.4 million in the second quarter of fiscal 2020 and up 12.5 percent on a two-year basis. Taking in $24.5 million in profit, the retailer raised its full-year guidance for the second time this year.
In a Nutshell: The men’s wear retailer is rebounding as social occasions returned over the 2021 summer. Comparable-store sales on a two-year basis grew sequentially in May (6.9 percent), June (14.7 percent) and July (18.2 percent). In-store sales conversions jumped 12 percent, while average dollars per transaction jumped 10 percent, indicating that consumers are willing to spend more on the category as a whole.
Inventory for the 2021 second quarter was $73.4 million, down 16 percent from $87.4 million last year and 33.5 percent from the $110.4 million held in 2019. The decrease over the past two years was directionally in line with the company’s goals to narrow its assortment, focus on brand exclusivity, and drive faster turnover.
Despite the changes, Destination XL’s inventory decline was “a bit more than we would have preferred,” according to CEO and president Harvey Kanter in an earnings call.
To counteract the challenges brought by ocean freight capacities and container costs, DXL is “considering” shipping goods by air. However, Kanter did not confirm beyond that whether a decision on air freight would be made.
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Kanter said that truck driver shortages have led to delays and price increases for transporting merchandise domestically, with the challenges expected to continue to the second half of 2021.
“Despite these challenges in getting goods to the port and ultimately to the sales floor, we have been successful in procuring fabrics to support production,” said Kanter in the call. “Our sourcing team began working with our merchants and planning partners to chase goods as early as February. If we can find a way to ship it, in most cases we’re able to get what we need, and then sell through it, and ultimately still turning our inventories faster than our historical pace.”
Chief financial officer Peter Stratton said the retailer believes its current receipt plans are “sufficient to support our sales forecast.” As the company chases more goods amid increased demand, he anticipates the gap between this year’s inventory and historical levels to narrow “somewhat” between now and the end of the year.
If there’s another positive that can be taken from the inventory situation, like many of its apparel contemporaries this year, DXL is becoming less promotional. At July 31, 2021, the men’s wear retailer’s clearance inventory represented 8.9 percent of total inventory, slimming down from 11.3 percent as of Aug. 1, 2020.
Destination XL currently operates 297 stores across its DXL, Casual Male XL and Rochester Clothing banners, but said 119 locations have expiring leases or a “kick-out” option within the next two years. With that in mind, the retailer says it has an opportunity to right-size its store portfolio if needed.
“This provides us an opportunity to right size our store portfolio, through lease renegotiations or lease-term expirations, to ensure that we are optimizing our store profitability and omnichannel distribution.”
The company’s 12-month active customer file is almost back to pre-pandemic levels, with its second quarter new-to-file customer acquisition rate increasing 29 percent on a two-year basis.
DXL revised its full-year guidance for the second time, raising sales estimates to approximately $490 million to $505 million, up from its previously updated outlook of approximately $415 million to $435 million. The high-end of the guidance is based on achieving a comparable sales increase for the year in the low double-digits as compared to fiscal 2019.
Adjusted EBITDA is forecast at approximately $65 million to $72 million, up from the prior expectation of approximately $20 million to $30 million.
Net income is expected to come in at 64 cents to 76 cents per diluted share, and the retailer anticipates free cash flow in excess of $50 million.
The retailer also expects gross margin to decrease slightly in the second half due to holiday promotions. For the full year, DXL projects a gross margin rate in the range of 45 percent to 50 percent.
Cash flow from operations for the first six months of fiscal 2021 was $42.2 million as compared to a $9 million loss for the first six months of fiscal 2020 and $900,000 for the first six months of fiscal 2019.
As of July 31, 2021, total debt, net of cash, was $11 million as compared to $61 million at August 1, 2020. DXL has $65.1 million in remaining availability under its credit facility, as compared to $12.4 million.
Net Sales: Total sales for the second quarter were $138.6 million, up 81.3 percent from $76.4 million in the second quarter of fiscal 2020 and up 12.5 percent from $123.2 million in the second quarter of fiscal 2019.
Overall comparable-sales growth was up 97.2 percent compared to 2020, while two-year sales growth jumped 21.6 percent. From 2019, store sales were up 13.1 percent for the quarter, with total direct sales was up 52.2 percent, with both channels seeing business accelerate month-over-month as the quarter progressed.
Net Earnings: Net income for the second quarter was $24.5 million, or 36 cents per diluted share, as compared to a net loss of $10.7 million, or a loss of 21 cents per diluted share, in the second quarter of fiscal 2020. In the 2019 second quarter, DXL broke even at zero cents per diluted share.
Adjusted EBITDA for the second quarter was $29.8 million compared to the $4.3 million adjusted loss in the year-ago period. The metric came in at $7.1 million in the second quarter of fiscal 2019.
CEO’s Take: Kanter said in the call that DXL’s CRM data revealed a welcome surprise as far as where customer acquisition is coming from.
“We are seeing more female customers than we have before,” Kanter said. “Attracting the female customer has been elusive for so many years. But we are undoubtedly seeing her more now than pre-pandemic. We theorize that she is helping him get back in the game. Either dressing up as many of our guests returned to the office or just getting back into the world with new clothes and a new look.”