US' Destination XL Q3 sales fall 9.8% YoY, comparable sales drop 11.3%

The net loss in the Q3 was $0.03 per diluted share, as compared to net income of $0.06 per diluted share in the third quarter of fiscal 2023. Adjusted EBITDA (a non-GAAP measure) was $1.0 million, or 1.0 per cent of sales, as compared to $8.6 million, or 7.3 per cent of sales in the third quarter of fiscal 2023. The total cash and investments were $43.0 million, compared to $60.4 million in 2023, with no outstanding debt for either period, said DXL Group in a press release.

For Q3 FY24, the gross margin rate of the company, inclusive of occupancy costs, was 45.1 per cent as compared to a gross margin rate of 47.5 per cent for Q3 FY23. The gross margin rate of the company decreased by 240 basis points (bps), which was driven by an increase of 220 bps in occupancy costs, as a percentage of sales, primarily due to the deleveraging of sales and increased rents because of lease extensions.

Merchandise margin for Q3 decreased by 20 basis points, as compared to Q3 of FY23, primarily due to an increase in markdown activity on seasonal merchandise as well as an increase in inbound freight.

As a percentage of sales, selling, general and administrative (SG&A) expenses for Q3 of FY24 were 44.1 per cent as compared to 40.2 per cent YoY for the Q3 of FY23. On a dollar basis, SG&A expenses decreased by $0.6 million as compared to the third quarter of fiscal 2023.

The decrease was primarily due to a decrease in marketing of $1.4 million as compared to the prior year's Q3, partially offset by increases in healthcare costs, technology costs and professional services. On a percentage of sales basis, SG&A expenses increased due to the decrease in sales for the third quarter of fiscal 2024 as compared to the third quarter of fiscal 2023.

The net interest income for Q3 of FY24 was $0.6 million, which was flat as compared to the third quarter of fiscal 2023. For both periods, interest income was earned from investments in US government-backed investments and money market accounts.

The adjusted EBITDA, a non-GAAP measure, for the third quarter of fiscal 2024 was $1.0 million, as compared to $8.6 million for the third quarter of fiscal 2023.

“DXL’s business continued to be challenged in the third quarter by consumer spending headwinds which resulted in lower traffic to our stores and lower conversion online. The consumer has been very price conscious, and our customers are gravitating toward our more moderate and entry-level price points. Despite these challenges, we have maintained our disciplined operating regimen, and we have avoided a material erosion in merchandise margin, while keeping our inventory position healthy and controlling our operating expenses,” said Harvey Kanter, president and chief executive officer (CEO) of DXL Group.

Nine-month (9M) financials

For the nine months ended November 2, 2024, the company reported sales of $347,812, reflecting a decrease from $384,673 compared to the previous period. The cost of goods sold, including occupancy, amounted to $183,520, resulting in a gross profit of $164,292.

The total expenses for this period were $158,826, which includes SG&A expenses of $148,594 and depreciation and amortisation expenses of $10,232. Despite a slight increase in total expenses, the company managed to maintain control over its operating costs.

The operating income for the nine months was $5,466, a significant drop from the previous year’s figure of $33,879. The company earned a net interest income of $1,673, which contributed to an income before taxes of $7,139. After accounting for a provision for income taxes of $2,768, the net income stood at $4,371.

In terms of earnings per share, the basic earnings per share were $0.08, while the diluted earnings per share were $0.07. “These figures highlight a decrease in profitability compared to the previous period,” the press release said.

Free cash flow, a non-GAAP measure, was $7.0 million for the first nine months of FY24 as compared to $22.7 million for the first 9M of FY23. “The decrease in free cash flow was primarily due to a decrease in operating income as well as increases in capital expenditures of $5.6 million for store development and other capital projects of $3.4 million,” it further added.

Outlook

For the full year FY25, DXL Group expects sales of approximately $470.0 million, and adjusted EBITDA guidance of 4.5 per cent from 6.0 per cent, primarily because of the deleveraging of costs on the lower sales base. The company said that sales guidance for FY24 reflects a comparable sales decrease of approximately 10 per cent. The company also expects gross margin rates to be approximately 130 to 180 basis points lower than FY23 primarily related to the deleveraging of occupancy on a lower sales base.

US' Destination XL Q3 sales fall 9.8% YoY, comparable sales drop 11.3%