Skip to main content

DXL Q1 Sales Drop 49% as CEO Warms Up to Curbside Service

After closing its stores on March 17 in response to the COVID-19 pandemic, Destination XL Group anticipates all 321 locations will be back up and running by the end of June. As of June 2, DXL has reopened approximately 201 stores.

Like most of its apparel cohorts, the big and tall men’s wear retailer saw major first-quarter losses due to the store closures, with revenue dropping 49.3 percent to $57.2 million from $113 million in the prior-year first quarter.

DXL also filed a mixed shelf offering of as much as $25 million with the U.S. Securities and Exchange Commission on Thursday, meaning the company intends to sell up to this amount of stock in order to repay debt, make capital expenditures and fund general and administrative expenses.

In a Nutshell: Throughout the pandemic, Destination XL operated more than 30 stores that were closed to the public to assist with picking, packing and shipping e-commerce orders.

The store closures led to an overly promotional environment, in which Destination XL encouraged customers to shop online so it could mitigate a buildup of seasonal inventory. As a result of the more aggressive clearance strategies to move as much spring merchandise as possible, the retailer took a $700,000 charge to increase its inventory reserves.

The promotions had a direct impact on merchandise margin and gross margin, with the former decreasing 7.3 percent in the quarter. The company nearly halved its gross margin rate, which was 23.1 percent during the quarter, well below the 43.7 percent in the year-ago period.

Related Stories

In total, the retailer canceled nearly $150 million in merchandise receipts from manufacturers, worth approximately 28 percent of its total fiscal 2020 receipt plan. As part of its objective to maintain a healthy inventory position, the company expects fall inventory buys will be below fiscal 2019 levels.

On the same day Simon Property Group laid down a $65.9 million lawsuit on Gap Inc. for skipping out on rent, Destination XL revealed it is currently negotiating with store and corporate office landlords on rent abatements and deferments for April through July due to the impact of shelter-in-place orders and store closures.

Despite its stores being closed throughout the pandemic, DXL’s global sourcing and design team helped the distribution center’s tailoring and alterations team to pivot to making masks. The retailer has sold nearly 2.5 million masks to date, with 250,000 masks for sale on The company has even sold masks to Fortune 100 companies as part of its wholesale business.

Although retailers have had internal debates of whether they should collaborate with Amazon, DXL indicated that its partnership with Amazon Essentials has been a key initiative to the growth of its wholesale business. The partnership contributed $2 million in sales in the first quarter.

During the quarter, DXL eliminated approximately 34 positions and furloughed most store associates and 264 corporate associates—approximately 60 percent of its corporate team.

The retailer aims to bring back staff across both its corporate office and stores as it reopens with a planned “three-phased” approach but will look to optimize store hours and staffing models based on customer demand. The company expects store payroll costs to trend lower than historical levels.

DXL also eliminated most of its capital improvement programs, all discretionary spending on store improvement projects and nonessential IT infrastructure. Capital expenditures for the three months were $1.6 million, compared to $3.7 million for the first three months of fiscal 2019.

Net sales: DXL saw first-quarter losses of 49.3 percent to $57.2 million from $113 million in the prior-year first quarter.

Earlier in the first quarter when all stores closed and more shoppers were focusing on buying essential items, comparable sales were down an average of 70 percent to 80 percent, but performance has improved week-to-week. Now, comparable sales are down approximately 40 percent to last year.

Sales on initially tripled from its initial “low-double-digit growth” to now over 30 percent. For the second quarter-to-date, the company is experiencing accelerated year-over-year growth of more than 70 percent.

Earnings: The retailer had a net loss of $41.7 million, or 82 cents per diluted share in the quarter, compared with a net loss of $3.1 million, or 6 cents per diluted share, for the first quarter of fiscal 2019. Adjusted EBITDA for the quarter was an $18.9 million loss compared to income of $4.8 million in the prior-year quarter. These losses, adjusted for asset impairment costs and pretax expenses, amounted to 37 cents per share.

Free cash flow for the quarter improved for DXL, to a use of $18.4 million as compared to a use of $20.2 million for the first quarter of fiscal 2019.

CEO’s Take: Harvey Kanter, president and CEO of Destination XL Group, has been bullish about the company’s ability to transition from “BOPIS” to what he calls “BOPAC” (buy online, pick up at curbside), and what it means for its stores going forward. While 30 of the closed stores have leveraged curbside pickup, Kanter has not said if or when the service will be expanded as stores reopen.

“They’re really like 30 mini warehouses,” Kanter said in an earnings call. “And our ability to leverage our assortment now across the chain is exposing the customer to a much greater breadth of offer and giving us much greater fluidity and the ability to deliver much quicker to customers, because basically you have a last-mile store in every city as opposed to a warehouse in Canton, Mass. And it’s giving us a greater ability to provide breadth of offer that is well beyond what is continuing in the distribution center.”

Despite total debt of $96.5 million that far outweighs the combined cash balance ($26.1 million) and remaining credit facility ($16.8 million), Kanter believes the company has “sufficient liquidity to navigate the working capital needs to get to the other side and into 2021.”