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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act.
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Title of each class |
Trading symbol(s) |
Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of August 13, 2021, the registrant had
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
DESTINATION XL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
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July 31, 2021 |
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January 30, 2021 |
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(Fiscal 2021) |
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(Fiscal 2020) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Non-current assets: |
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Property and equipment, net of accumulated depreciation and amortization |
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Operating lease right-of-use assets |
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Intangible assets |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
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Current liabilities: |
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Current portion of long-term debt |
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$ |
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$ |
- |
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Accounts payable |
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Accrued expenses and other current liabilities |
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Operating leases, current |
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Borrowings under credit facility |
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— |
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Total current liabilities |
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Long-term liabilities: |
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Long-term debt, net of current portion |
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Operating leases, non-current |
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Other long-term liabilities |
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Total long-term liabilities |
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Commitments and contingencies |
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Stockholders' equity (deficit): |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Treasury stock at cost, |
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( |
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( |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive loss |
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( |
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( |
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Total stockholders' equity (deficit) |
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( |
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Total liabilities and stockholders' equity (deficit) |
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$ |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
2
DESTINATION XL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
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For the Three Months Ended |
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For the Six Months Ended |
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July 31, 2021 |
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August 1, 2020 |
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July 31, 2021 |
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August 1, 2020 |
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(Fiscal 2021) |
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(Fiscal 2020) |
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(Fiscal 2021) |
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(Fiscal 2020) |
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Sales |
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$ |
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$ |
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$ |
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$ |
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Cost of goods sold including occupancy costs |
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Gross profit |
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Expenses: |
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Selling, general and administrative |
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Impairment of assets |
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( |
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— |
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Depreciation and amortization |
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Total expenses |
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Operating income (loss) |
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( |
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( |
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Interest expense, net |
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( |
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( |
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( |
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( |
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Income (loss) before provision for income taxes |
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( |
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( |
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Provision for income taxes |
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Net income (loss) |
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$ |
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$ |
( |
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$ |
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$ |
( |
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Net income (loss) per share - basic |
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$ |
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$ |
( |
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$ |
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$ |
( |
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Net income (loss) per share - diluted |
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$ |
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$ |
( |
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$ |
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$ |
( |
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Weighted-average number of common shares outstanding: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of the consolidated financial statements.
3
DESTINATION XL GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
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For the Three Months Ended |
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For the Six Months Ended |
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July 31, 2021 |
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August 1, 2020 |
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July 31, 2021 |
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August 1, 2020 |
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(Fiscal 2021) |
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(Fiscal 2020) |
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(Fiscal 2021) |
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(Fiscal 2020) |
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Net income (loss) |
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$ |
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$ |
( |
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$ |
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$ |
( |
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Other comprehensive income before taxes: |
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Foreign currency translation |
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( |
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( |
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( |
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( |
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Pension plans |
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Other comprehensive income before taxes |
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Tax provision related to items of other comprehensive income |
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— |
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— |
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— |
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— |
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Other comprehensive income, net of tax |
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Comprehensive income (loss) |
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$ |
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$ |
( |
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$ |
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$ |
( |
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The accompanying notes are an integral part of the consolidated financial statements.
4
DESTINATION XL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands)
(Unaudited)
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Accumulated |
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Additional |
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Other |
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Common Stock |
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Paid-in |
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Treasury Stock |
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Accumulated |
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Comprehensive |
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Shares |
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Amounts |
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Capital |
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Shares |
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Amounts |
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Deficit |
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Income (Loss) |
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Total |
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Balance at January 30, 2021 |
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$ |
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$ |
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( |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Issuance of common stock through private direct offering, net of offering costs |
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Board of directors compensation |
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Stock compensation expense |
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Issuance of common stock, upon RSUs release |
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( |
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— |
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Accumulated other comprehensive income (loss): |
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Pension plan, net of taxes |
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Foreign currency, net of taxes |
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( |
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( |
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Net income |
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Balance at May 1, 2021 |
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$ |
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$ |
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( |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Board of directors compensation |
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Stock compensation expense |
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Exercise of stock options |
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— |
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Accumulated other comprehensive income (loss): |
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Pension plan, net of taxes |
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Foreign currency, net of taxes |
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( |
) |
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( |
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Net income |
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Balance at July 31, 2021 |
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$ |
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$ |
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( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
5
DESTINATION XL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
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Accumulated |
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Additional |
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Other |
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Common Stock |
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Paid-in |
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Treasury Stock |
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Accumulated |
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Comprehensive |
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Shares |
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Amounts |
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Capital |
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Shares |
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Amounts |
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Deficit |
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Income (Loss) |
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Total |
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Balance at February 1, 2020 |
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$ |
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$ |
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( |
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$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Board of directors compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock, upon RSUs release |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
Deferred stock vested |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension plan, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Balance at May 2, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred stock vested |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension plan, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Balance at August 1, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
The accompanying notes are an integral part of the consolidated financial statements.
6
DESTINATION XL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
For the six months ended |
|
|||||
|
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
||
|
|
|
(Fiscal 2021) |
|
|
(Fiscal 2020) |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
|
|
|
$ |
( |
) |
|
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: |
|
|
|
|
|
|
|
|
|
Amortization of deferred debt issuance costs |
|
|
|
|
|
|
|
|
|
Impairment of assets |
|
|
( |
) |
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
Board of directors stock compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
|
|
|
|
|
Inventories |
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
( |
) |
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
( |
) |
|
|
( |
) |
|
Operating leases, net |
|
|
( |
) |
|
|
|
|
|
Accrued expenses and other liabilities |
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) operating activities |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Additions to property and equipment, net |
|
|
( |
) |
|
|
( |
) |
|
Net cash used for investing activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock from private direct offering, net of offering costs |
|
|
|
|
|
|
— |
|
|
Repayment of existing FILO loan |
|
|
( |
) |
|
|
— |
|
|
Proceeds from new FILO loan |
|
|
|
|
|
|
— |
|
|
Net borrowings (repayments) under credit facility |
|
|
( |
) |
|
|
|
|
|
Debt issuance costs |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from the exercise of stock options |
|
|
|
|
|
|
— |
|
|
Net cash provided by (used for) financing activities |
|
|
( |
) |
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
( |
) |
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of the consolidated financial statements.
7
DESTINATION XL GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
In the opinion of management of Destination XL Group, Inc., a Delaware corporation (collectively with its subsidiaries, referred to as the “Company”), the accompanying unaudited Consolidated Financial Statements contain all adjustments necessary for a fair presentation of the interim financial statements. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with the notes to the Company’s audited Consolidated Financial Statements for the fiscal year ended January 30, 2021 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 19, 2021.
The information set forth in these statements may be subject to normal year-end adjustments. The information reflects all adjustments that, in the opinion of management, are necessary to present fairly the Company’s results of operations, financial position and cash flows for the periods indicated. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s business historically has been seasonal in nature, and the results of the interim periods presented are not necessarily indicative of the results to be expected for the full year.
The Company’s fiscal year is a 52- or 53- week period ending on the Saturday closest to January 31. Fiscal 2021 and fiscal 2020 are 52-week periods ending on January 29, 2022 and January 30, 2021, respectively.
COVID-19 Pandemic and its impact on results and comparability of financial statements
On March 11, 2020, the World Health Organization declared the current outbreak of a novel coronavirus disease (“COVID-19”) as a global pandemic. The COVID-19 pandemic had an adverse effect on the Company’s operations during fiscal 2020. All of the Company’s store locations were closed temporarily on March 17, 2020 and the majority of the Company’s workforce was furloughed in March 2020. The Company began reopening stores in late April and by the end of June 2020 all retail stores had been reopened, but the majority with reduced operating hours. As a result of the impact of the pandemic on our business in fiscal 2020, including the temporary closure of all of our stores in fiscal 2020, results for the second quarter and first six months of fiscal 2021 may not be comparable to the results for the second quarter and first six months of fiscal 2020.
While vaccines are being widely distributed and many areas where our stores are located currently have limited or no restrictions, the duration of the COVID-19 pandemic and its variants remain uncertain and could continue to have a material adverse impact on the Company’s results of operations, financial condition and cash flows.
Segment Information
The Company has
Fair Value of Financial Instruments
ASC Topic 825, Financial Instruments, requires disclosure of the fair value of certain financial instruments. ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements.
The valuation techniques utilized are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
8
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities.
The Company utilizes observable market inputs (quoted market prices) when measuring fair value whenever possible.
The fair value of long-term debt is classified within Level 2 of the valuation hierarchy. At July 31, 2021, the fair value approximated the carrying amount based upon terms available to the Company for borrowings with similar arrangements and remaining maturities.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and short-term borrowings approximate fair value because of the short maturity of these instruments.
Accumulated Other Comprehensive Income (Loss) - (“AOCI”)
Other comprehensive income (loss) includes amounts related to foreign currency and pension plans and is reported in the Consolidated Statements of Comprehensive Income (Loss). Other comprehensive income (loss) and reclassifications from AOCI for the three and six months ended July 31, 2021 and August 1, 2020, respectively, were as follows:
|
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
||||||||||||||||||
|
For the three months ended: |
|
(in thousands) |
|
|||||||||||||||||||||
|
|
|
Pension Plans |
|
|
Foreign Currency |
|
|
Total |
|
|
Pension Plans |
|
|
Foreign Currency |
|
|
Total |
|
||||||
|
Balance at beginning of the quarter |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications, net of taxes |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income, net of taxes (1) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) for the period |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of quarter |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
||||||||||||||||||
|
For the six months ended: |
|
(in thousands) |
|
|||||||||||||||||||||
|
|
|
Pension Plans |
|
|
Foreign Currency |
|
|
Total |
|
|
Pension Plans |
|
|
Foreign Currency |
|
|
Total |
|
||||||
|
Balance at beginning of fiscal year |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications, net of taxes |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income, net of taxes (1) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) for the period |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of quarter |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
|
(1) |
|
Stock-based Compensation
All share-based payments, including grants of employee stock options and restricted stock, are recognized as an expense in the Consolidated Statements of Operations based on their fair values and vesting periods. The fair value of stock options is determined
9
using the Black-Scholes valuation model and requires the input of subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (the “expected term”), the estimated volatility of the Company’s common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements (“forfeitures”). The Company reviews its valuation assumptions at each grant date and, as a result, is likely to change its valuation assumptions used to value employee stock-based awards granted in future periods. The values derived from using the Black-Scholes model are recognized as an expense over the vesting period, net of estimated forfeitures. The estimation of stock-based awards that will ultimately vest requires judgment. Actual results and future changes in estimates may differ from the Company’s current estimates.
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model based on the assumptions in the table below as it relates to stock options granted during the first six months of fiscal 2021 and fiscal 2020.
|
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
||
|
Expected volatility |
|
|
|
|
|
|
||
|
Risk-free interest rate |
|
|
|
|
|
|
||
|
Expected life |
|
|
|
|
|
|
||
|
Dividend rate |
|
|
— |
|
|
|
— |
|
|
Weighted average fair value of options granted |
|
$ |
|
|
$ |
|
||
The Company has outstanding performance stock units (PSUs) with a market condition. The respective grant-date fair value and derived service periods assigned to the PSUs were determined using a Monte Carlo model. The valuation included assumptions with respect to the Company’s historical volatility, risk-free rate and cost of equity.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for events or changes in circumstances that might indicate the carrying amount of the assets may not be recoverable. The Company assesses the recoverability of the assets by determining whether the carrying value of such assets over their respective remaining lives can be recovered through projected undiscounted future cash flows. The model for undiscounted future cash flows includes assumptions, at the individual store level, with respect to expectations for future sales and gross margin rates as well as an estimate for occupancy costs used to estimate the fair value of the respective store’s operating lease right-of-use asset. The amount of impairment, if any, is measured based on projected discounted future cash flows using a discount rate reflecting the Company’s average cost of funds.
For the second quarter and first six months of fiscal 2021, the Company recognized a non-cash gain of $
In the first six months of fiscal 2020, as a result of the significant impact of the COVID-19 pandemic on the Company’s business and the continued uncertainty at that time, the Company recorded an impairment charge of $
Leases
The Company adopted ASU 2016-02, “Leases (Topic 842)” in fiscal 2019. Under ASC 842, the Company determines if an arrangement contains a lease at the inception of a contract. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use (“ROU”) assets and lease liabilities are recognized at the commencement date based on the present value of the remaining future minimum lease payments, initial direct costs and any lease incentives are included in the value of those right-of use assets. As the interest rate implicit in the Company’s leases is not readily determinable, the Company utilizes its incremental borrowing rate, based on information available at the lease measurement date to determine the present value of future payments. The Company elected the lessee non-lease component separation practical expedient, which permits the Company to not separate non-lease components from the lease components to which they relate. The Company also made an accounting policy election that the recognition requirement of ASC 842 will not be applied to certain, if any, non-store leases, with a term of 12 months or less, recognizing those lease payments on a straight-line basis over the lease term. At July 31, 2021, the Company had
10
For store leases, the Company accounts for lease components and non-lease components as a single lease component. Certain store leases may require additional payments based on sales volume, as well as reimbursement for real estate taxes, common area maintenance and insurance, and are expensed as incurred as variable lease costs. Other store leases contain one periodic fixed lease payment that includes real estate taxes, common area maintenance and insurance. These fixed payments are considered part of the lease payment and included in the right-of-use assets and lease liabilities. Tenant allowances are included as an offset to the right-of-use asset and amortized as reductions to rent expense over the associated lease term.
See Note 4 ‘‘Leases’’ for additional information.
Recently Issued Accounting Pronouncements
No new accounting pronouncements, issued or effective during the first six months of fiscal 2021, have had or are expected to have a significant impact on the Company’s Consolidated Financial Statements.
2. Revenue Recognition
The Company operates as a retailer of big and tall men’s clothing, which includes stores, direct and wholesale. Revenue is recognized by the operating segment that initiates a customer’s order. Store sales are defined as sales that originate and are fulfilled directly at the store level. Direct sales are defined as sales that originate online, including those initiated online at the store level, on its website or on third-party marketplaces. Wholesale sales are defined as sales made to wholesale customers pursuant to the terms of each customer’s contract with the Company. Generally, all revenues are recognized when control of the promised goods is transferred to customers, in an amount that reflects the consideration in exchange for those goods. Sales tax collected from customers and remitted to taxing authorities is excluded from revenue and is included as part of accrued expenses on the Consolidated Balance Sheets.
|
|
̶ |
Revenue from the Company’s store operations is recorded upon purchase of merchandise by customers, net of an allowance for sales returns, which is estimated based upon historical experience. |
|
|
̶ |
Revenue from the Company’s direct operations is recognized at the time a customer order is delivered, net of an allowance for sales returns, which is estimated based upon historical experience. |
|
|
̶ |
Revenue from the Company’s wholesale operations is recognized at the time the wholesale customer takes physical receipt of the merchandise, net of any identified discounts in accordance with each individual order. For the first six months of fiscal 2021 and fiscal 2020, chargebacks were immaterial. |
Unredeemed Gift Cards, Gift Certificates, and Credit Vouchers. Upon issuance of a gift card, gift certificate, or credit voucher, a liability is established for its cash value. The liability is relieved and net sales are recorded upon redemption by the customer. Based on historical redemption patterns, the Company can reasonably estimate the amount of gift cards, gift certificates, and credit vouchers for which redemption is remote, which is referred to as “breakage”. Breakage is recognized over two years in proportion to historical redemption trends and is recorded as sales in the Consolidated Statements of Operations. The gift card liability, net of breakage, was $
Unredeemed Loyalty Coupons. The Company offers a free loyalty program to its customers for which points accumulate based on the purchase of merchandise. Approximately
Shipping. Shipping and handling costs are accounted for as fulfillment costs and are included in cost of sales for all periods presented. Amounts related to shipping and handling that are billed to customers are recorded in sales, and the related costs are recorded in cost of goods sold, including occupancy costs, in the Consolidated Statements of Operations.
Disaggregation of Revenue
As noted above under Segment Information in Note 1, the Company’s business consists of
11
|
|
|
For the three months ended |
|
|
|
|
|
For the six months ended |
|
|
|
|
||||||||||||||
|
(in thousands) |
|
July 31, 2021 |
|
|
|
|
August 1, 2020 |
|
|
|
|
|
July 31, 2021 |
|
|
|
|
August 1, 2020 |
|
|
|
|
||||
|
Store sales |
|
$ |
|
|
|
|
% |
$ |
|
|
|
|
% |
|
$ |
|
|
|
|
% |
$ |
|
|
|
|
% |
|
Direct sales |
|
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
|
% |
|
|
|
|
|
% |
|
Retail segment |
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
|
Wholesale segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales |
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
3. Debt
Credit Agreement with Bank of America, N.A.
On May 24, 2018, the Company entered into the Seventh Amended and Restated Credit Agreement, as amended, with Bank of America, N.A., as agent, providing for a secured $
The Credit Facility provides maximum committed borrowings of $
At July 31, 2021, the Company had
Borrowings made pursuant to the Revolving Facility bear interest, calculated under either the Federal Funds rate or the LIBOR rate, at a rate equal to the following: (a) the Federal Funds rate plus a varying percentage based on the Company’s excess availability, of either
Borrowings and repayments under the Revolving Facility for the first six months ended July 31, 2021 and August 1, 2020 were as follows:
|
|
|
For the six months ended |
|
|||||
|
(in thousands) |
|
July 31, 2021 |
|
|
August 1, 2020 |
|
||
|
Borrowings |
|
$ |
|
|
|
$ |
|
|
|
Repayments |
|
|
( |
) |
|
|
( |
) |
|
Net borrowings (repayments) |
|
$ |
( |
) |
|
$ |
|
|
12
Long-Term Debt
Long-term debt at July 31, 2021 and January 30, 2021 is as follows:
|
(in thousands) |
|
July 31, 2021 |
|
|
January 30, 2021 |
|
||
|
FILO Loan - existing |
|
|
— |
|
|
$ |
|
|
|
FILO Loan - new |
|
$ |
|
|
|
|
— |
|
|
Less: unamortized debt issuance costs |
|
|
( |
) |
|
|
( |
) |
|
Total long-term debt |
|
|
|
|
|
|
|
|
|
Less: current portion of long-term debt, net of debt issuance costs |
|
|
( |
) |
|
|
— |
|
|
Long-term debt, net of current portion |
|
$ |
|
|
|
$ |
|
|
On March 16, 2021, the Company refinanced its existing $
The new FILO loan will be subject to quarterly principal repayments of $
The Company paid interest and fees totaling $
4. Leases
The Company leases all of its store locations and its corporate headquarters, which also includes its distribution center, under operating leases. The store leases typically have initial terms of
ASC 842 requires the assessment of any lease modification to determine if the modification should be treated as a separate lease and if not, modification accounting would be applied. Lease modification accounting requires the recalculation of the ROU asset, lease liability and lease expense over the respective lease term. In April 2020, the FASB issued guidance allowing entities to make a policy election to account for lease concessions related to the COVID-19 pandemic as though enforceable rights and obligations for those concessions existed. The election applies to any lessor-provided lease concession related to the impact of the COVID-19 pandemic, provided the concession does not result in a substantial increase in the rights of the lessor or in the obligations of the lessee. The Company opted not to elect this practical expedient and instead accounted for these rent concessions as lease modifications in accordance with ASC 842. As of July 31, 2021, the Company’s operating leases liabilities represent the present value of the remaining future minimum lease payments updated based on concessions and lease modifications.
13
The following table is a summary of the Company’s components of net lease cost for the three and six months ended July 31, 2021 and August 1, 2020:
|
|
|
For the three months ended |
|
|
For the six months ended |
|
||||||||||
|
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
||||
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Variable lease costs(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lease costs |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
(1) |
|
|
|
Supplemental cash flow and balance sheet information related to leases for the six months ended July 31, 2021 and August 1, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands) |
|
For the six months ended |
|
|||||
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
July 31, 2021 |
|
|
August 1, 2020 |
|
||
|
Operating cash flows for operating leases (1) |
|
$ |
|
|
|
$ |
|
|
|
Non-cash operating activities: |
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for operating lease liabilities |
|
$ |
|
|
|
$ |
|
|
|
Net decrease in right-of-use assets due to lease modifications associated with rent concessions and lease exits |
|
$ |
- |
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term |
|
|
|
|
|
|
||
|
Weighted average discount rate |
|
|
|
|
|
|
||
|
|
(1) |
|
The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities recorded on the Consolidated Balance Sheet as of July 31, 2021:
|
(in thousands) |
|
|
|
|
|
2021 (remaining) |
|
$ |
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total minimum lease payments |
|
$ |
|
|
|
Less: amount of lease payments representing interest |
|
|
|
|
|
Present value of future minimum lease payments |
|
$ |
|
|
|
Less: current obligations under leases |
|
|
|
|
|
Long-term lease obligations |
|
$ |
|
|
5. Long-Term Incentive Plans
The following is a summary of the Company’s Long-Term Incentive Plan (“LTIP”). All equity awards granted under long-term incentive plans are issued from the Company’s stockholder-approved 2016 Incentive Compensation Plan. See Note 6, Stock-Based Compensation.
At July 31, 2021, the Company has three active LTIPs: the 2019-2021 LTIP, 2020-2022 LTIP and 2021-2023 LTIP. Each participant in the LTIP participates based on that participant’s “Target Cash Value” which is defined as the participant’s annual base salary (on the participant’s effective date) multiplied by his or her LTIP percentage. Under each LTIP,
14
combination of
Performance targets for the 2019-2021 LTIP, 2020-2022 LTIP and 2021-2023 LTIP were established and approved by the Compensation Committee on August 7, 2019, June 11, 2020, and March 8, 2021, respectively.
At July 31, 2021, the Company has accrued $
6. Stock-Based Compensation
The Company has one active stock-based compensation plan: the 2016 Incentive Compensation Plan (the “2016 Plan”). The initial share reserve under the 2016 Plan was
The 2016 Plan is administered by the Compensation Committee. The Compensation Committee is authorized to make all determinations with respect to amounts and conditions covering awards. Options are not granted at a price less than fair value on the date of the grant.
The following tables summarize the share activity and stock option activity for the first six months of fiscal 2021:
|
|
|
RSUs (1) |
|
|
Deferred shares (2) |
|
|
Performance Share Units (3) |
|
|
Total number of shares |
|
|
Weighted-average grant-date fair value |
|
|||||
|
Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding non-vested shares at beginning of year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
Shares granted |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
$ |
|
|
|
Shares vested/issued |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
$ |
|
|
|
Outstanding non-vested shares at end of quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
(1) |
|
|
|
(2) |
|
|
|
(3) |
|
15
|
|
|
Number of shares |
|
|
Weighted-average exercise price per option |
|
|
Weighted-average remaining contractual term |
|
|
Aggregate intrinsic value |
|
||||
|
Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options at beginning of year |
|
|
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
|
|
Options granted (1) |
|
|
|
|
|
$ |
|
|
|
|
— |
|
|
|
— |
|
|
Options exercised |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Options expired and canceled |
|
|
( |
) |
|
$ |
|
|
|
|
— |
|
|
|
— |
|
|
Outstanding options at end of quarter |
|
|
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
|
|
Options exercisable at end of quarter |
|
|
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
|
|
|
(1) |
|
For the first six months of fiscal 2021, the Company granted stock options to purchase an aggregate of
Non-Employee Director Compensation Plan
The Company granted
Stock Compensation Expense
The Company recognized total stock-based compensation expense of $
7. Earnings per Share
The following table provides a reconciliation of the number of shares outstanding for basic and diluted earnings per share:
|
|
|
For the three months ended |
|
|
For the six months ended |
|
||||||||||
|
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
||||
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock equivalents – stock options, restricted stock units and deferred stock (1) |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Diluted weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The following potential common stock equivalents were excluded from the computation of diluted earnings per share in each period, because the exercise price of such options was greater than the average market price per share of common stock for the respective periods or because the unearned compensation associated with stock options, restricted stock units, or deferred stock had an anti-dilutive effect.
16
|
|
|
For the three months ended |
|
|
For the six months ended |
|
||||||||||
|
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
||||
|
(in thousands, except exercise prices) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Deferred stock |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Range of exercise prices of such options |
|
- $5.50 |
|
|
- $7.02 |
|
|
|
|
|
- $7.02 |
|
||||
The above options, which were outstanding at July 31, 2021, expire from
Excluded from the computation of basic and diluted earnings per share for both periods were
8. Registered Direct Offering – Common Stock
On February 5, 2021, the Company sold, pursuant to a stock purchase agreement and through a registered direct offering, an aggregate of
9. Income Taxes
During the second quarter and first six months of fiscal 2021, the Company recorded income tax expense of $
Since the end of fiscal 2014, the Company has maintained a full valuation allowance against its deferred tax assets. While the Company has returned to profitability for the first six months of fiscal 2021, and has projected that it will generate taxable income and ultimately emerge from a three-year cumulative loss, the Company believes that a full valuation allowance remains appropriate until the Company generates a more consistent history of profitability. Realization of the Company’s deferred tax assets is dependent on generating sufficient taxable income in the near term.
For federal income tax purposes, at the end of fiscal 2020, the Company had net operating loss carryforwards of approximately $
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “will,” “estimate,” “intend,” “plan,” “continue,” “believe,” “expect” or “anticipate” or the negatives thereof, variations thereon or similar terminology. The forward-looking statements contained in this Quarterly Report are generally located in the material set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but may be found in other locations as well, and include statements regarding the continuing impact of the COVID-19 pandemic on our business and financial results, expected savings from our efforts to right size our lease structure, expected sales trends, expected marketing spend, expected inventory levels, potential freight cost and raw materials cost increases, and our liquidity expectations for the next 12 months. These forward-looking statements generally relate to plans and objectives for future operations and are based upon management’s reasonable estimates of future results or trends. The forward-looking statements in this Quarterly Report should not be regarded as a representation by us or any other person that our objectives or plans will be achieved. The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited Consolidated Financial Statements and notes to those statements included elsewhere in this Quarterly Report and our audited Consolidated Financial Statements for the year ended January 30, 2021, included in our Annual Report on Form 10-K for the year ended January 30, 2021, as filed with the Securities and Exchange Commission on March 19, 2021 (our “Fiscal 2020 Annual Report”).
Numerous factors could cause our actual results to differ materially from such forward-looking statements. We encourage readers to refer to our “Risk Factors” found in Part I, Item 1A of our Fiscal 2020 Annual Report. This discussion sets forth certain risks and uncertainties that may have an impact on future results and direction of our Company, including, without limitation, risks relating to the duration and continuing impact of the COVID-19 pandemic and its impact on the Company’s results of operations, the execution of our corporate strategy, predict customer tastes and fashion trends, forecast sales growth trends, grow market share, ability to maintain sufficient inventory levels, navigate supply chain uncertainties and compete successfully in our market.
All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the foregoing. These forward-looking statements speak only as of the date of the document in which they are made. We disclaim any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in our expectations or any change in events, conditions or circumstances in which the forward-looking statement is based.
BUSINESS SUMMARY
Destination XL Group, Inc., together with our consolidated subsidiaries (the “Company”), is the largest specialty retailer of big and tall men’s clothing with retail, wholesale and direct operations in the United States and Toronto, Canada. We operate under the trade names of Destination XL®, DXL®, DXL Outlets, Casual Male XL® and Casual Male XL Outlets. At July 31, 2021, we operated 221 Destination XL stores, 16 DXL outlet stores, 40 Casual Male XL retail stores, 20 Casual Male XL outlet stores and a digital business, including an e-commerce site at dxl.com and a mobile site m.destinationXL.com and mobile app.
Unless the context indicates otherwise, all references to “we,” “our,” “us” and “the Company” refer to Destination XL Group, Inc. and our consolidated subsidiaries. We refer to our fiscal years, which end on January 29, 2022, January 30, 2021 and February 1, 2020 as “fiscal 2021,” “fiscal 2020” and “fiscal 2019,” respectively. All three fiscal years are 52-week periods.
SEGMENT REPORTING
We have three principal operating segments: our stores, direct business and our wholesale business. We consider our stores and direct business segments to be similar in terms of economic characteristics, production processes and operations, and have therefore aggregated them into one reportable segment, retail segment, consistent with our omni-channel business approach. Due to the immateriality of the wholesale segment’s revenues, profits and assets, its operating results have been aggregated with the retail segment for all periods.
COMPARABLE SALES
Our customer’s shopping experience continues to evolve across multiple channels and we are continually adapting to meet the guest’s needs. The majority of our stores have the capability of fulfilling online orders if merchandise is not available in the warehouse. As a result, we continue to see more transactions that begin online but are ultimately completed at the store level. Similarly, if a customer visits a store and the item is out of stock, the associate can order the item through our website. A customer also has the ability to order online and pick-up in a store and, more recently due to the COVID-19 pandemic, pick-up at curbside. We define store sales as sales that originate and are fulfilled directly at the store level. 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.
18
Stores that have been open for 13 months are included in comparable sales. Stores that have been remodeled or re-located during the period are also included in our determination of comparable stores sales. Stores that have been expanded by more than 25% are considered non-comparable for the first 13 months. If a store becomes a clearance center, it is also removed from the calculation of comparable sales. The method of calculating comparable sales varies across the retail industry and, as a result, our calculation of comparable sales is not necessarily comparable to similarly titled measures reported by other retailers.
The Company has not carved-out prior year sales for periods where the stores were temporarily closed in fiscal 2020 due to the pandemic. However, because the Company’s two stores in Canada were closed by government edict for a significant portion of the first six months of fiscal 2021, we have removed them from the current calculation of comparable sales.
RESULTS OF OPERATIONS
Continuing Impact of COVID-19 Pandemic on Our Business
On March 11, 2020, the World Health Organization declared COVID-19 as a global pandemic. While the pandemic had an adverse effect on our business, financial condition and result of operations in fiscal 2020, we are hopeful that the worst is behind us and we are on the road to recovery. Substantial uncertainty remains regarding the duration of the pandemic, the potential impact of new variants, and the long-term effect of the pandemic on the global economy and its supply chain, unemployment, and overall consumer demand and spending.
Executive Summary
The following review of our results for second quarter and first six months of fiscal 2021 includes certain comparisons against the second quarter and first six months of fiscal 2019 in addition to the second quarter and first six months of fiscal 2020. Due to the COVID-19 pandemic and its impact on our results during the first six months of fiscal 2020, we believe that the additional discussion against the second quarter and first six months of fiscal 2019 is a more meaningful comparison with respect to the progress the Company made through the end of the second quarter of fiscal 2021.
|
|
|
For the three months ended |
|
|
For the six months ended |
|
||||||||||||||||||
|
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
|
August 3, 2019 |
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
|
August 3, 2019 |
|
||||||
|
(in millions, except percentage of sales and per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
138.6 |
|
|
$ |
76.4 |
|
|
$ |
123.2 |
|
|
$ |
250.1 |
|
|
$ |
133.7 |
|
|
$ |
236.2 |
|
|
Net income (loss) |
|
$ |
24.5 |
|
|
$ |
(10.7 |
) |
|
$ |
0.0 |
|
|
$ |
33.1 |
|
|
$ |
(52.4 |
) |
|
$ |
(3.0 |
) |
|
Adjusted EBITDA (Non-GAAP basis) |
|
$ |
29.8 |
|
|
$ |
(4.3 |
) |
|
$ |
7.1 |
|
|
$ |
43.5 |
|
|
$ |
(23.2 |
) |
|
$ |
11.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin. as a percentage of sales |
|
|
51.7 |
% |
|
|
28.1 |
% |
|
|
44.3 |
% |
|
|
49.0 |
% |
|
|
26.0 |
% |
|
|
44.0 |
% |
|
SG&A expenses, as a percentage of sales |
|
|
30.1 |
% |
|
|
33.7 |
% |
|
|
38.5 |
% |
|
|
31.5 |
% |
|
|
43.3 |
% |
|
|
39.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per diluted share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
0.36 |
|
|
$ |
(0.21 |
) |
|
$ |
0.00 |
|
|
$ |
0.50 |
|
|
$ |
(1.03 |
) |
|
$ |
(0.06 |
) |
|
Adjusted net income (loss) (Non-GAAP basis) |
|
$ |
0.27 |
|
|
$ |
(0.15 |
) |
|
$ |
0.00 |
|
|
$ |
0.37 |
|
|
$ |
(0.52 |
) |
|
$ |
(0.04 |
) |
We are pleased to report that net income for the second quarter of fiscal 2021 was $0.36 per diluted share, as compared to a loss of $(0.21) per diluted share in the second quarter of fiscal 2020 and breakeven in the second quarter of fiscal 2019. While we had planned for the second quarter to perform well based on the trends coming out of the first quarter, the second quarter results exceeded our expectations. This strong earnings performance was driven by month-over-month sales growth in both stores and direct business, an improved merchandise margin, lower occupancy costs and reduced SG&A expenses as a result of cost savings initiatives, implemented during fiscal 2020.
We believe we are seeing a material shift in how consumers are thinking about and engaging with DXL. Many of our existing customers have returned to shop after months of staying close to home, and many new customers are discovering DXL for the first time. We believe we are steadily increasing our market share in the big + tall market by driving sales through our initiatives around digital engagement, a customer-first approach and repositioning of the brand. Our 12-month active customer file is almost back to pre-pandemic levels and in the second quarter we saw an increase in the new-to-file rate of 28.5%, as compared to the second quarter of fiscal 2019.
Our earnings performance for the second quarter was not only driven by our sales growth, it was also due to improvement in our merchandise margin, driven by our reduced promotional posture that reduced markdowns and, contributed to a 350 basis point improvement in merchandise margin as compared to the second quarter of fiscal 2019. We also benefitted from the operating leverage
19
we created in fiscal 2020 through our lease renegotiations and our SG&A cost-savings initiatives. We have renegotiated approximately 133 of our store leases that we expect will deliver over $17.1 million of savings over the life of the leases, including $6.2 million of expected savings in fiscal 2021. We have also reduced our SG&A expenses by approximately 840 basis points as compared to the second quarter of fiscal 2019. All of these factors contributed to our strong second quarter results.
From a liquidity perspective, we had no borrowings outstanding under our Credit Facility and unused excess availability of $65.1 million at July 31, 2021. Total debt, net of cash, at July 31, 2021, was $11.0 million as compared to $61.0 million at August 1, 2020 and $58.7 million at August 3, 2019.
Financial Summary
Sales
The following tables present sales by segment for the three and six months ended July 31, 2021, August 1, 2020 and August 3, 2019:
|
|
|
For the three months ended |
|
||||||||||||||||||
|
(in thousands, except percentages) |
|
July 31, 2021 |
|
|
August 1, 2020 |
|
|
August 3, 2019 |
|
||||||||||||
|
Store sales |
|
$ |
99,043 |
|
|
71.9 |
% |
|
$ |
38,465 |
|
|
53.9 |
% |
|
$ |
95,119 |
|
|
78.9 |
% |
|
Direct sales |
|
|
38,664 |
|
|
28.1 |
% |
|
|
32,959 |
|
|
46.1 |
% |
|
|
25,406 |
|
|
21.1 |
% |
|
Retail segment |
|
$ |
137,707 |
|
|
|
|
|
$ |
71,424 |
|
|
|
|
|
$ |
120,525 |
|
|
|
|
|
Wholesale segment |
|
|
883 |
|
|
|
|
|
|
5,018 |
|
|
|
|
|
|
2,720 |
|
|
|
|
|
Total Sales |
|
$ |
138,590 |
|
|
|
|
|
$ |
76,442 |
|
|
|
|
|
$ |
123,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended |
|
||||||||||||||||||
|
(in thousands, except percentages) |
|
July 31, 2021 |
|
|
August 1, 2020 |
|
|
August 3, 2019 |
|
||||||||||||
|
Store sales |
|
$ |
173,923 |
|
|
70.7 |
% |
|
$ |
70,792 |
|
|
55.9 |
% |
|
$ |
181,834 |
|
|
78.7 |
% |
|
Direct sales |
|
|
72,206 |
|
|
29.3 |
% |
|
|
55,841 |
|
|
44.1 |
% |
|
|
49,239 |
|
|
21.3 |
% |
|
Retail segment |
|
$ |
246,129 |
|
|
|
|
|
$ |
126,633 |
|
|
|
|
|
$ |
231,073 |
|
|
|
|
|
Wholesale segment |
|
|
3,955 |
|
|
|
|
|
|
7,036 |
|
|
|
|
|
|
5,145 |
|
|
|
|
|
Total Sales |
|
$ |
250,084 |
|
|
|
|
|
$ |
133,669 |
|
|
|
|
|
$ |
236,218 |
|
|
|
|
Total sales for the second quarter of fiscal 2021 were $138.6 million, as compared to $76.4 million in the second quarter of fiscal 2020 and $123.2 million in the second quarter of fiscal 2019. At July 31, 2021, we had 297 stores as compared to 317 stores at August 1, 2020 and 328 stores at August 1, 2019.
As compared to the second quarter of fiscal 2020, comparable sales for the quarter were up 97.2%, with comparable sales from our stores up 168.0% and the direct business up 16.0%. Due to the COVID-19 pandemic, our stores were negatively impacted in the second quarter of 2020 by temporary closings and reduced customer demand.
As compared to the second quarter of fiscal 2019, comparable sales for the second quarter were up 21.6% driven primarily by our direct business, which was up 52.2% and our stores, which were up 13.1%. The increase in our direct business was principally due to our DXL.com e-commerce site, which had a sales increase of 66.4% as compared to the second quarter of fiscal 2019.
Sales accelerated throughout the quarter, with substantial month-over-month increases in both our stores and direct business. Regionally, the strongest improvements were in the Southeast, Midwest, and South Central parts of the country, which exceeded the Pacific Northwest, Northeast and Mid-Atlantic by approximately 600 basis points. For the second quarter of fiscal 2021, all regions had a comparable sales increase as compared to the second quarter of fiscal 2019.
Our direct business continued to outperform our expectations during the second quarter. Similar to our stores, we saw month-over-month improvement against fiscal 2019 sales. Even with the sales recovery from our stores, we continued to see growth in our direct business. For the second quarter of fiscal 2021, our direct business represented 28.1% of total retail sales as compared to 21.1% of retail sales in the second quarter of fiscal 2019.
Sales from our wholesale business were $0.9 million for the second quarter, as compared to $5.0 million for the second quarter of fiscal 2020 and $2.7 million for the second quarter of 2019. The decrease in sales from our wholesale business during the second quarter of fiscal 2021 was due primarily due to reduced order volume. The second quarter of fiscal 2020 included the sale of $4.1 million in protective masks.
20
For the first six months of fiscal 2021, total sales increased 5.9% to $250.1 million, as compared to $236.2 for the first six months of fiscal 2019. Comparable sales for the first six months of fiscal 2021, as compared to fiscal 2019, increased 13.1%, with comparable sales from stores up 3.7% and the direct business up 46.1%. For the first six months of fiscal 2021, sales from wholesale were $4.0 million as compared to $7.0 million for the first six months of fiscal 2020 and $5.1 million for the first six months of fiscal 2019.
Gross Margin Rate
For the second quarter of fiscal 2021, our gross margin rate, inclusive of occupancy costs, was 51.7% as compared to a gross margin rate of 28.1% for second quarter of fiscal 2020 and 44.3% for the second quarter of fiscal 2019.
As compared to fiscal 2020, the 2,360 basis point improvement was due to a 1,460 basis point improvement in merchandise margins, driven by lower promotional markdowns, and a 900 basis point improvement in occupancy costs, due to the leveraging of sales and savings realized from the renegotiated lease reductions. In the second quarter of last year, we were highly promotional in an effort to drive traffic as stores started to reopen and to move inventory.
As compared to fiscal 2019, our gross margin rate improved by 740 basis points, driven by a 350 basis point improvement in merchandise margins and a 390 basis point improvement in occupancy costs. On a dollar basis, our occupancy costs decreased by $3.2 million, as a result of our lease renegotiations as well as closed stores. The improvement in merchandise margin of 350 basis points was due to our change in promotional strategy. During the second quarter of this year, we did not run any broad-based promotions for Memorial Day weekend or Father’s Day, which allowed us to sell more full-price merchandise. This strategy drove significant savings in markdown dollars and an improvement in gross margin rate and, while we expect to increase our promotional activity during the holiday season, we expect to maintain a reduced promotional strategy going forward. Partially offsetting the savings in markdown dollars was the continued increased cost of freight due to shortage of containers and vessels for overseas product, which we expect to continue in the short-term. We are also continuing to see increases in the cost of certain raw materials, particularly cotton.
For the first six months of fiscal 2021, our gross margin rate was 49.0% as compared to a gross margin rate of 26.0% for the second quarter of fiscal 2020 and 44.0% for the second quarter of fiscal 2019. As compared to fiscal 2020, our gross margin rate improved by 2,300 basis points, driven by an increase in merchandise margin of 1,130 basis points and an improvement in occupancy costs as a percentage of sales of 1,170 basis points. As compared to fiscal 2019, 500 basis point improvement in gross margin was due to a 180 basis point improvement in merchandise margins and a 320 basis point improvement in occupancy costs.
Selling, General and Administrative Expenses
As a percentage of sales, SG&A expenses for the second quarter of fiscal 2021 were 30.1% as compared to 33.7% for the second quarter of fiscal 2020 and 38.5% for the second quarter of fiscal 2019.
As compared to the second quarter of fiscal 2020, on a dollar basis, SG&A expenses increased by $16.0 million, or 62%. The increase was primarily due to increases in store payroll costs to support the increase in sales, increased advertising costs and incentive accruals. These increases were partially offset by realized cost savings.
As compared to the second quarter of fiscal 2019, SG&A expenses decreased by $5.7 million, or (12.0%). The reduction in SG&A costs was the result of cost reduction efforts taken in fiscal 2020 to not only preserve liquidity at the time but to lower our operating cost structure long-term. These savings were partially offset by an increase in incentive-based accruals.
For the first six months of fiscal 2021, SG&A expenses were 31.5% as compared to 43.3% for the first six months of fiscal 2020 and 39.0% for the first six months of fiscal 2019. As compared to the first six months of fiscal 2019, SG&A costs were down $13.2 million, or 14.3%, as a result of our cost-savings initiatives, reductions in store payroll costs and reduced marketing costs, partially offset by an increase in incentive-based accruals.
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 and direct operating costs, represented 17.4% of sales for the first six months of fiscal 2021 as compared to 23.3% of sales for the first six months of fiscal 2019. Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 14.1% of sales for the first six months of fiscal 2021 compared to 15.7% of sales for the first six months of fiscal 2019. For the first six months of fiscal 2020, Customer Facing Costs were 20.0% of sales and Corporate Support Costs were 23.3% of sales.
Impairment of Assets
During the second quarter and first six months of fiscal 2021, we recorded non-cash gains of $0.4 million and $1.1 million, respectively, on the reduction of our operating lease liability in connection with our decision to close certain retail stores, which resulted in a revaluation of the lease liability. Approximately $0.4 million and $1.0 million of the non-cash gains for the second quarter and first six months of fiscal 2021, respectively, related to leases where the right-of-use assets had previously been impaired and was recorded as a reduction of the previously recorded impairment and included in the Impairment of Assets line of the Consolidated Statement of Operations for the three and six months ended July 31, 2021. The remainder of the non-cash gain of $0.1 million for the six months ended July 31, 2021 was reflected as a reduction of occupancy costs.
21
In the first six months of fiscal 2020, we recorded an impairment charge of $16.3 million. The impairment charge included approximately $12.5 million for the write-down of certain right-of-use assets, related to leases where the carrying value exceeded fair value, and $3.8 million for the write-down of property and equipment, related to stores where the carrying value exceeded fair value. Based on the indicators present in the first quarter of fiscal 2020, we completed a recoverability analysis, which included the impact of the COVID-19 pandemic on the operations of our stores and we used projections that were based on multiple probability-weighted scenarios, assuming that our stores would gradually open throughout the second quarter of fiscal 2020 but that consumer retail spending would remain substantially curtailed for a period of time.
Depreciation and Amortization
Depreciation and amortization for the second quarter of fiscal 2021 of $4.4 million decreased from $5.3 million for the second quarter of fiscal 2020. For the first six months of fiscal 2021, depreciation and amortization decreased $2.2 million to $8.9 million as compared to $11.1 million for the first six months of fiscal 2020. The decrease was due to a lower depreciable cost base, especially from our store assets.
Interest Expense, Net
Net interest expense for the second quarter of fiscal 2021 decreased to $0.9 million, as compared to $1.1 million for the second quarter of fiscal 2020. The decrease in interest expense for the second quarter was due to reduced borrowings on the credit facility, partially offset by an increase in interest rates. For the first six months of fiscal 2021, net interest expense was $2.1 million as compared to $1.8 million for the first six months of fiscal 2020. The increase was due to an increase in the effective borrowing rates on both short-term and long-term borrowings, offset by reduced borrowings under the credit facility.
Income Taxes
We established a full valuation allowance against our deferred tax assets at the end of fiscal 2014. While the Company has returned to profitability for the first six months of fiscal 2021, and has projected that it will generate taxable income and ultimately emerge from a three-year cumulative loss, the Company believes that a full valuation allowance remains appropriate until the Company generates a more consistent history of profitability.
Our tax provision for the second quarter and first six months of fiscal 2021 was primarily due to income tax in states where NOL usage is statutorily limited. Our tax provision for the second quarter and first six months of fiscal 2020 was primarily due to state margin tax, based on gross receipts less certain deductions.
Net Income (Loss)
For the second quarter of fiscal 2021, we recorded net income of $24.5 million, or $0.36 per diluted share, compared with a net loss of $(10.7) million, or $(0.21) per diluted share, for the second quarter of fiscal 2020 and net income of $0.0 million, or $0.00 per diluted share, for the second quarter of fiscal 2019.
For the first six months of fiscal 2021, we had net income of $33.1 million, or $0.50 per diluted share, compared to a net loss of $(52.4) million, or $(1.03) per diluted share, for the first six months of fiscal 2020 and a net loss of $(3.0) million, or $(0.06) per diluted share, for the first six months of fiscal 2019.
On a non-GAAP basis, before asset impairment costs and assuming a normalized tax rate of 26% for all periods, adjusted net income for the second quarter of fiscal 2021 was $0.27 per diluted share, as compared to an adjusted net loss of $(0.15) per diluted share for the second quarter of fiscal 2020, and an adjusted net income of $0.00 per diluted share for the second quarter of fiscal 2019. Adjusted net income for the first six months of fiscal 2021 was $0.37 per diluted share, as compared to an adjusted net loss of $(0.52) per diluted share for the first six months of fiscal 2020 and an adjusted net loss of $(0.04) per diluted share for the first six months of fiscal 2019.
Inventory
As of July 31, 2021, our inventory decreased approximately $14.0 million to $73.4 million, as compared to $87.4 million at August 1, 2020 and decreased approximately $37.0 million as compared to $110.4 million at August 3, 2019. Given our current sales trends and global supply chain disruptions, maintaining sufficient inventory levels is a priority. We believe that we will be able to secure sufficient inventory to support our sales forecasts. At the same time, we are continuing to manage inventory conservatively, narrowing our assortment while driving meaningfully greater levels of exclusivity with national brands. At July 31, 2021, our clearance inventory decreased by approximately $3.3 million, representing 8.9% of our total inventory, as compared to 11.3% at August 1, 2020 and 10.9% at August 3, 2019.
22
SEASONALITY
Historically, and consistent with the retail industry, we have experienced seasonal fluctuations as it relates to our operating income and net income. Traditionally, a significant portion of our operating income and net income is generated in the fourth quarter, as a result of the “Holiday” season.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash generated from operations and availability under our credit facility with Bank of America, N.A., which was most recently amended in March 2021 (“Credit Facility”). We took several actions during fiscal 2020 to preserve our liquidity, and in the first quarter of fiscal 2021, we further strengthened our liquidity position by completing a direct offering of our common stock, which raised $4.4 million, net of offering costs, and by amending our Credit Facility to allow for the refinancing of our $15.0 million FILO loan, which increased our borrowing capability. As a result of our earnings in the second quarter of fiscal 2021, at July 31, 2021, we had no outstanding borrowings under our Credit Facility. We believe our cash on hand, availability under our Credit Facility, and ongoing cash generated from our operations will be sufficient to cover our working capital requirements and limited capital expenditures for the next 12 months. However, we remain cautiously optimistic regarding the duration of the pandemic and how it may continue to impact our financial results and liquidity.
For the first six months of fiscal 2021, cash flow from operations improved to $42.2 million as compared to $(9.0) million for the first six months of fiscal 2020 and $0.9 million for the first six months of fiscal 2019. Free cash flow, a non-GAAP measure, improved to $40.5 million for the first six months of fiscal 2021 as compared to $(11.1) million for the first six months of fiscal 2020 and $(6.7) million for the first six months of fiscal 2019. The improvement in free cash flow was primarily due to our improvement in earnings as well as faster inventory turn.
Cash flow from financing activities decreased by $(80.9) million as compared to fiscal 2020, primarily due to the repayment of amounts outstanding under our revolver, which included the repayment of the $30.0 million that we drew-down on our Credit Facility in March 2020 to provide the Company with financial flexibility during the pandemic.
The following is a summary of our total debt outstanding at July 31, 2021 with the associated unamortized debt issuance costs:
|
(in thousands) |
|
Gross Debt Outstanding |
|
|
Less Debt Issuance Costs |
|
|
Net Debt Outstanding |
|
|||
|
FILO Loan |
|
$ |
17,500 |
|
|
$ |
(666 |
) |
|
$ |
16,834 |
|
|
Total debt |
|
$ |
17,500 |
|
|
$ |
(666 |
) |
|
$ |
16,834 |
|
Our Credit Facility provides for a maximum committed borrowing of $125.0 million, which, pursuant to an accordion feature, may be increased to $175.0 million upon our request and the agreement of the lender(s) participating in the increase (the “Revolving Facility”). The Credit Facility includes a sublimit of $20.0 million for commercial and standby letters of credit and a sublimit of up to $15.0 million for swingline loans. Borrowings made pursuant to the Revolving Facility under the Credit Facility bear interest, calculated under either the Federal Funds rate or the LIBOR rate, at a rate equal to the following: (a) the Federal Funds rate plus a varying percentage based on the Company’s excess availability, of either 1.75% or 2.00%, or (b) the LIBOR rate (the Company being able to select interest periods of 1 week, 1 month, 2 months, 3 months or 6 months) plus a varying percentage based on the Company’s excess availability, of either 2.75% or 3.00%. The current maturity date is May 24, 2023.
We had no outstanding borrowings under the Credit Facility at July 31, 2021. At July 31, 2021, outstanding standby letters of credit were $2.7 million and there were no outstanding documentary letters of credit. The average monthly borrowing outstanding under the Credit Facility during the first six months ended July 31, 2021 was approximately $32.7 million, resulting in an average unused excess availability of approximately $42.5 million. Unused excess availability at July 31, 2021 was $65.1 million.
FILO Loans
In March 2021, we refinanced our existing $15.0 million FILO loan (the “existing FILO loan”) and entered into a new $17.5 million FILO loan (the “new FILO loan”). The new FILO loan has higher advance rates and additional borrowing capacity of approximately $5.0 to $10.0 million. The total borrowing capacity under the new FILO loan is based on a borrowing base, generally defined as a specified percentage of the value of eligible accounts (including certain trade names) that step down over time, plus a specified percentage of the value of eligible inventory that steps down over time. The new FILO loan will be subject to quarterly principal repayments of $218,750 beginning December 31, 2021.
The new FILO loan is subject to a prepayment penalty, if any portion of the principal for the new FILO Loan is prepaid during the initial two-year period, equal to the greater of (i) the incremental interest that would have been incurred with respect to that principal repayment during the two year period and (ii) 3% of the principal prepayment, unless the prepayment occurs after March 16, 2022 in
23
connection with the Company’s renegotiation of its Credit Agreement in which case the prepayment premium would be equal to 1% of the principal prepayment. The new FILO loan expires on May 24, 2023, but may be automatically extended in connection with any extension of the revolving facility under the Credit Agreement, but no later than March 16, 2026, without approval from the FILO lender.
Borrowings made under the new FILO loan will bear interest, at the LIBOR rate (with a LIBOR floor of 1.0%) plus an applicable margin rate of 7.50% through September 16, 2021. Thereafter, the applicable margin rate will be 7.50% for so long as the Company’s 12-month trailing consolidated EBITDA (as defined in the Fourth Amendment) measured as of the end of each month is less than $18.0 million, or 7.00% when 12-month trailing consolidated EBITDA is equal to or greater than $18.0 million. Accordingly, the interest rate at July 31, 2021 was 8.50%.
Capital Expenditures
The following table sets forth the open stores and related square footage at July 31, 2021, August 1, 2020 and August 3, 2019, respectively:
|
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
|
August 3, 2019 |
|
|||||||||||||||
|
Store Concept |
|
Number of Stores |
|
|
Square Footage |
|
|
Number of Stores |
|
|
Square Footage |
|
|
Number of Stores |
|
|
Square Footage |
|
||||||
|
(square footage in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DXL Retail |
|
|
221 |
|
|
|
1,685 |
|
|
|
228 |
|
|
|
1,729 |
|
|
|
220 |
|
|
|
1,697 |
|
|
DXL Outlets |
|
|
16 |
|
|
|
80 |
|
|
|
17 |
|
|
|
82 |
|
|
|
16 |
|
|
|
82 |
|
|
Casual Male XL Retail |
|
|
40 |
|
|
|
132 |
|
|
|
49 |
|
|
|
160 |
|
|
|
60 |
|
|
|
200 |
|
|
Casual Male Outlets |
|
|
20 |
|
|
|
60 |
|
|
|
23 |
|
|
|
69 |
|
|
|
29 |
|
|
|
88 |
|
|
Rochester Clothing |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3 |
|
|
|
36 |
|
|
Total Stores |
|
|
297 |
|
|
|
1,957 |
|
|
|
317 |
|
|
|
2,040 |
|
|
|
328 |
|
|
|
2,103 |
|
We do not plan to open any new stores or rebrand any of our Casual Male XL stores during fiscal 2021. We have 119 stores that have leases with either a natural lease expiration or a kick-out option within the next two years. This provides us an opportunity to rightsize our store portfolio, through ongoing lease renegotiations or lease-term expirations, to ensure that we are optimizing our store profitability and omni-channel distribution. Since the beginning of fiscal 2020, we have renegotiated approximately 133 of our store leases, which we expect will result in over $17.1 million of savings over the life of the leases, including $6.2 million of expected savings in fiscal 2021. We will continue to work with our landlords on leases where our rents are not aligned with sales.
Our capital expenditures for the first six months of fiscal 2021 were $1.7 million as compared to $2.1 million for the first six months of fiscal 2020. During the first six months of fiscal 2021, we closed 5 DXL retail stores, 1 DXL outlet store, 6 Casual Male XL retail stores and 2 Casual Male XL outlets.
24
CRITICAL ACCOUNTING POLICIES
There have been no material changes to the critical accounting policies and estimates disclosed in our Fiscal 2020 Annual Report. See Note 1 to the Consolidated Financial Statements included in this report for information on recent accounting pronouncements and changes in accounting principles.
Non-GAAP Financial Measures
Adjusted net income (loss), adjusted net income (loss) per diluted share, free cash flow and Adjusted EBITDA are non-GAAP measures. These non-GAAP measures are not presented in accordance with GAAP and should not be considered superior to or as a substitute for net loss or cash flows from operating activities or any other measure of performance derived in accordance with GAAP. In addition, all companies do not calculate non-GAAP financial measures in the same manner and, accordingly, the non-GAAP measures presented in this Quarterly Report may not be comparable to similar measures used by other companies. We believe that inclusion of these non-GAAP measures helps investors gain a better understanding of our performance, especially when comparing such results to previous periods and that they are useful as an additional means for investors to evaluate our operating results, when reviewed in conjunction with our GAAP financial statements.
Reconciliations of these non-GAAP measures are presented in the following tables (certain columns may not foot due to rounding):
Adjusted net income (loss) and adjusted net income (loss) per diluted share. Adjusted net income (loss) and adjusted net income (loss) per diluted share reflect an adjustment assuming a normal tax rate of 26% and the add-back of CEO transition and impairment of assets, if any. We have fully reserved against our deferred tax assets and, therefore, net loss is not reflective of earnings assuming a “normal” tax position. Adjusted net loss provides investors with a useful indication of the financial performance of the business, on a comparative basis, assuming a normalized tax rate of 26% and without these charges.
|
|
|
For the three months ended |
|
|
For the six months ended |
|
||||||||||||||||||||||||||||||||||||||||||
|
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
|
August 3, 2019 |
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
|
August 3, 2019 |
|
||||||||||||||||||||||||||||||
|
|
|
$ |
|
|
Per diluted share |
|
|
$ |
|
|
Per diluted share |
|
|
$ |
|
|
Per diluted share |
|
|
$ |
|
|
Per diluted share |
|
|
$ |
|
|
Per diluted share |
|
|
$ |
|
|
Per diluted share |
|
||||||||||||
|
(in thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) (GAAP basis) |
|
$ |
24,451 |
|
|
$ |
0.36 |
|
|
$ |
(10,714 |
) |
|
$ |
(0.21 |
) |
|
$ |
38 |
|
|
$ |
0.00 |
|
|
$ |
33,148 |
|
|
$ |
0.50 |
|
|
$ |
(52,440 |
) |
|
$ |
(1.03 |
) |
|
$ |
(3,043 |
) |
|
$ |
(0.06 |
) |
|
Adjust: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of assets |
|
|
(365 |
) |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
(1,017 |
) |
|
|
|
|
|
|
16,335 |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
CEO transition costs |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
702 |
|
|
|
|
|
|
Add back actual income tax provision (benefit) |
|
|
426 |
|
|
|
|
|
|
|
24 |
|
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
454 |
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
(29 |
) |
|
|
|
|
|
Add income tax (provision) benefit, assuming a normal tax rate of 26% |
|
|
(6,373 |
) |
|
|
|
|
|
|
2,779 |
|
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
(8,472 |
) |
|
|
|
|
|
|
9,376 |
|
|
|
|
|
|
|
616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income (loss) (non-GAAP basis) |
|
$ |
18,139 |
|
|
$ |
0.27 |
|
|
$ |
(7,911 |
) |
|
$ |
(0.15 |
) |
|
$ |
22 |
|
|
$ |
0.00 |
|
|
$ |
24,113 |
|
|
$ |
0.37 |
|
|
$ |
(26,685 |
) |
|
$ |
(0.52 |
) |
|
$ |
(1,754 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares outstanding on a diluted basis |
|
|
|
|
|
|
67,615 |
|
|
|
|
|
|
|
51,078 |
|
|
|
|
|
|
|
50,175 |
|
|
|
|
|
|
|
65,938 |
|
|
|
|
|
|
|
50,918 |
|
|
|
|
|
|
|
49,734 |
|
Free Cash Flow. We define free cash flow as cash flow from operating activities less capital expenditures. Free cash flow excludes the mandatory and discretionary repayment of debt. Free cash flow is a metric that management uses to monitor liquidity. We expect to fund our ongoing capital expenditures with cash flow from operations.
The following table reconciles free cash flow:
|
|
|
For the six months ended |
|
|||||||||
|
(in millions) |
|
July 31, 2021 |
|
|
August 1, 2020 |
|
|
August 3, 2019 |
|
|||
|
Cash flow from operating activities (GAAP basis) |
|
$ |
42.2 |
|
|
$ |
(9.0 |
) |
|
$ |
0.9 |
|
|
Capital expenditures |
|
|
(1.7 |
) |
|
|
(2.1 |
) |
|
|
(7.6 |
) |
|
Free Cash Flow (non-GAAP basis) |
|
$ |
40.5 |
|
|
$ |
(11.1 |
) |
|
$ |
(6.7 |
) |
25
Adjusted EBITDA. Adjusted EBITDA is calculated as earnings before interest, taxes, depreciation and amortization and is before any impairment of assets and CEO transition costs, if any. We believe that adjusted EBITDA is useful to investors in evaluating our performance and is a key metric to measure profitability and economic productivity.
|
|
|
For the three months ended |
|
|
|
|
For the six months ended |
|
||||||||||||||||||
|
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
|
August 3, 2019 |
|
|
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
|
August 3, 2019 |
|
||||||
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) (GAAP basis) |
|
$ |
24.5 |
|
|
$ |
(10.7 |
) |
|
$ |
0.0 |
|
|
|
|
$ |
33.1 |
|
|
$ |
(52.4 |
) |
|
$ |
(3.0 |
) |
|
Add back: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of assets |
|
|
(0.4 |
) |
|
|
- |
|
|
|
- |
|
|
|
|
|
(1.0 |
) |
|
|
16.3 |
|
|
|
- |
|
|
CEO transition costs |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
0.7 |
|
|
Provision (benefit) for income taxes |
|
|
0.4 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
0.5 |
|
|
|
0.0 |
|
|
|
(0.0 |
) |
|
Interest expense |
|
|
0.9 |
|
|
|
1.1 |
|
|
|
0.9 |
|
|
|
|
|
2.1 |
|
|
|
1.8 |
|
|
|
1.7 |
|
|
Depreciation and amortization |
|
|
4.4 |
|
|
|
5.3 |
|
|
|
6.2 |
|
|
|
|
|
8.9 |
|
|
|
11.1 |
|
|
|
12.5 |
|
|
Adjusted EBITDA (non-GAAP basis) |
|
$ |
29.8 |
|
|
$ |
(4.3 |
) |
|
$ |
7.1 |
|
|
|
|
$ |
43.5 |
|
|
$ |
(23.2 |
) |
|
$ |
11.9 |
|
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
In the normal course of business, our financial position and results of operations are routinely subject to a variety of risks, including market risk associated with interest rate movements on borrowings and foreign currency fluctuations. We regularly assess these risks and have established policies and business practices to protect against the adverse effects of these and other potential exposures.
Interest Rates
We utilize cash from operations and from our Revolving Facility of our Credit Facility to fund our working capital needs. Our Credit Facility is not used for trading or speculative purposes. As part of our Credit Facility, we also have an outstanding $17.5 million FILO loan. In addition, we have available letters of credit as sources of financing for our working capital requirements. Borrowings under the Credit Facility, which expires May 24, 2023, bear interest at variable rates based on Bank of America’s prime rate or LIBOR.
At July 31, 2021, we had no outstanding borrowings under our Revolving Facility. The prime-based rate was 5.25% during the first six months of fiscal 2021. At July 31, 2021, the interest rate for the $17.5 million outstanding under the FILO loan was 8.50%.
Based upon a sensitivity analysis as of July 31, 2021, assuming average outstanding borrowing during the first six months of fiscal 2021 of $32.7 million under our Revolving Facility and $17.5 million outstanding under our FILO loan, a 50 basis point increase in interest rates would have resulted in a potential increase in interest expense of approximately $251,000 on an annualized basis.
Foreign Currency
Our two DXL stores located in Ontario, Canada conduct business in Canadian dollars. Sales from these stores were immaterial to consolidated sales. As such, we believe that movement in foreign currency exchange rates will not have a material adverse effect on our financial position or results of operations.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of July 31, 2021. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of July 31, 2021, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
While the majority of our employees are working remotely during the COVID-19 pandemic, we have not experienced any changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended July 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
We are subject to various legal proceedings and claims that arise in the ordinary course of business. Management currently believes that the resolution of these matters will not have a material adverse impact on our future results of operations or financial position.
Item 1A. Risk Factors.
There have been no material changes to the risk factors as previously disclosed in Part I, Item 1A of our Fiscal 2020 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
27
Item 6. Exhibits.
|
3.1 |
|
Certificate of Amendment to Restated Certificate of Incorporation, effective as of August 6, 2021.* |
|
|
|
|
|
3.2 |
|
|
|
|
|
|
|
4.1 |
|
|
|
|
|
|
|
10.1 |
|
|
|
|
|
|
|
31.1 |
|
|
|
|
|
|
|
31.2 |
|
|
|
|
|
|
|
32.1 |
|
|
|
|
|
|
|
32.2 |
|
|
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document. |
|
|
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
|
|
104 |
|
Cover Page Interactive Data File – The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
|
|
|
* Filed herewith. |
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
DESTINATION XL GROUP, INC. |
||
|
|
|
|
|
|
|
Date: August 31, 2021 |
|
By: |
|
/S/ John F. Cooney |
|
|
|
|
|
John F. Cooney |
|
|
|
|
|
Vice President, Managing Director, Chief Accounting Officer and Corporate Controller (Duly Authorized Officer and Chief Accounting Officer)
|
29
