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DXL Ends Amazon Partnership

Destination XL Group ended 2021’s final quarter with total net sales reaching $133.5 million, up 33.3 percent from the $100.1 million brought in during the 2020 holiday period. The big-and-tall men’s wear retailer netted profits of $9.9 million, but plans to cut ties with one of its largest wholesale channel partners.

In a Nutshell: Destination XL will exit its partnership with Amazon, which made up a “significant portion” of its wholesale revenues. The company cited low margins, global supply chain volatility, increasing lead times and the retail business’s shifting dynamics as the factors behind the decision.

The company follows in the footsteps of major brands like Nike and Birkenstock that severed links with Amazon in favor of their own sales channels.

The men’s wear chain also plans to open 50 net new stores over the next three-to-five years. Currently operating 235 DXL stores and 54 Casual Male stores, the company’s new locations would account for planned natural lease expirations some Casual Male locations closing down.

In an earnings call, president and CEO Harvey Kanter said the company would convert select Casual Male stores into DXL banners, and in some cases relocate them depending on the market. Some current DXL stores might also move to a new location, Kanter said.

Destination XL Group is working with a real estate advisory firm to leverage data and analytics to lay out the upcoming store development plan.

Inventory was $81.8 million as of Jan. 29, 2022, down 3.8 percent from $85 million to end 2020 and down 20.1 percent from the $102.4 million at the close of fiscal 2019. As Destination XL continues conservatively managing its inventory by narrowing its assortments and increasing exclusivity with national brands, it now turns inventory at a rate of 2.0 as compared to its historical rate of approximately 1.5.

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In line with full-price sales increases across the board in apparel, the DXL parent’s clearance items represented 6 just percent of product, down from 10.4 percent of merchandise on Jan. 30, 2021. But Kanter said the supply chain disruptions “made chasing inventory a challenge,” further impacting clearance inventory levels.

“We purposely and strategically went into Q4 with virtually no publicly available price-led discount promotions,” Kanter said. “No promotions on Black Friday, not on Cyber Monday and not in the first two weeks of December. To confirm our approach, we ran a small discount-driven promotional test during the third week of December, which did not provide incremental traffic, further proving that our customer is motivated by differentiation that we offer more than purely price.”

Partially offsetting benefits from lower markdowns were higher freight costs throughout the supply chain.

“We expect that we will continue to experience elevated freight costs throughout the coming year and have also continued to see an increase in raw material price increases,” Kanter said.

For the fourth quarter, gross margin, inclusive of occupancy costs, was 49.8 percent, compared with a gross margin of 39 percent for the fourth quarter of fiscal 2020 and a gross margin of 43 percent for the period two years ago.

The year-over-year margin shift was driven by a 410-basis-point (4.1-percentage-point) improvement in merchandise margins and a 270-basis-point (2.7-percentage-point) improvement in occupancy costs. On a dollar basis, occupancy costs decreased by $3.3 million, as a result of lease renegotiations as well as closed stores.

DXL expects to grow its top line in fiscal 2022, but recognizes that the business benefited from pent-up demand and fiscal stimulus policy last year. The retailer is accounting for sales of $510 million to $530 million, or an increase of 1 percent to 5 percent, as well as an EBITDA margin greater than 10 percent.

At Jan. 29, 2022, Destination XL had total cash of $15.5 million and no outstanding debt, having paid off total debt of $55.4 million the company had as of Jan. 30, 2021. The retailer has $68.9 million in excess availability under its credit facility.

On Tuesday, ahead of the earnings announcement, the retailer’s board authorized a $15 million stock repurchase program.

Net Sales: Total sales for the fourth quarter were $133.5 million, up 33.3 percent from $100.1 million for the 2020 period and up 1.7 percent from $131.2 million for fiscal 2019. Comparable sales increased 41.5 percent from a year ago, and 9.4 percent as compared to holiday 2019 numbers.

The comparable sales boost came on 58.4 percent growth from stores and a 17.8 percent increase in the direct e-commerce business.

Total sales for fiscal 2021 were $505 million, up 58.4 percent as compared to total sales of $318.9 million for fiscal 2020 and up 6.7 percent from $474 million for fiscal 2019. Comparable sales increased 68.5 percent as compared to fiscal 2020 and 14.2 percent as compared to fiscal 2019.

Full-year comparable sales account for stores generating a 98.1 percent revenue boost, while the direct business was up 25.4 percent. On a two-year basis, store sales increased 4.8 percent while the direct business accelerated 44 percent. The direct business generated 31 percent of retail sales at Destination XL in 2021.

Wholesale revenues for 2021 dipped dramatically at a 67.5 percent pace to $5.4 million from the $16.6 million taken in during 2020, and were down 56.8 percent from $12.5 million in 2019.

Net Earnings: Net income for the fourth quarter was $9.9 million, or 14 cents per diluted share, as compared to a net loss of $5.1 million, or a loss of 10 cents per diluted share, in last year’s fourth quarter.

Adjusted EBITDA was $14.3 million for the fourth quarter as compared to roughly $700,000 for fiscal 2020.

For all of 2021, net income was $56.7 million, or 83 cents per diluted share, as compared to a net loss of $64.5 million, or a loss of $1.26 per diluted share, in 2020.

Adjusted EBITDA was $76.9 million as compared to $24.2 million last year.

CEO’s Take: “Our current merchandise assortment is approximately 52 percent private label and 48 percent designer collections. And our sales presentation for the fourth quarter was relatively consistent to that inventory composition,” Kanter said. “Tailored clothing accounted for 15.3 percent of the fourth quarter business compared to 18.4 percent in the third quarter. This continues to be an area we are aggressively seeking to improve our stock position, with additional upside seen in the greater return of heading into offices, spring season events and occasions this year.”