In three years, the men’s big and tall retailer will transition away from its Casual Male XL stores as it concentrates all its energies on the more profitable Destination XL units. “We’re going to close all 400 Casual Male stores by the end of 2015 and have 225 to 250 DXL stores,” David Levin, president and chief executive officer of Casual Male Retail Group Inc., told WWD.
In reporting its second-quarter results, Levin told analysts: “Based on the success we’ve had thus far with our Destination XL stores, we’ve decided to accelerate the execution of the strategy and more aggressively open DXL stores and close our traditional Casual Male XL stores.” About 50 Casual Male outlets will be retained.
The company is on track to have 51 DXL stores by the end of this year. These stores bring together the merchandise from both the lower-priced Casual Male stores and the upscale Rochester Big & Tall units.
“The Destination XL concept is more attractive to a wider customer audience due to the expansive private label and name-brand apparel selection, a broader range of sizes for the end-of-rack customer and an appealing shopping environment,” he said.
Furthermore, same-store sales increases at the Casual Male stores “have never broken into the double digits and were less than 1 percent in the second quarter of 2012,” Levin said. “At the same time, our new DXL stores have been consistently in the double digits and we reported 17.1 percent comps in Q2. The performance of our DXL stores is exceeding our expectations, which is why we are taking this aggressive step to capitalize on DXL’s success.”
Dennis Hernreich, chief financial and chief operating officer, said the plan is to close 70 Casual Male stores in fiscal 2012 and another 120 in fiscal 2013.
“By the end of fiscal 2012, the DXL stores are expected to be generating approximately 25 percent of our store sales, which is up from 10 percent in the current quarter and nearly 50 percent by the end of fiscal 2013 on an annualized basis in our retail channel,” he detailed. “As a result of our strategic decision to accelerate our store rollout, we expect to incur incremental costs during the next three years. These costs are primarily associated with lease terminations and asset impairments, as a result of early store closures, which is expected to approximate in the range of between $15 million and $20 million, as well as some additional SG&A expenses of between $2.5 million and $3 million per annum to support the accelerated rollout.”
By 2016, the company expects to see “significantly greater top and bottom-line growth.”
Levin noted that right now, only 17 percent of potential customers had ever heard of DXL and only 8 percent had actually visited one.
“Now that may seem very discouraging,” he said. “However, of those who visited the DXL store, 73 percent made a purchase and 89 percent of those who made a purchase intend to return.”
To raise the store’s profile, as well as its “sales volume and profitability,” the company will ramp up its marketing efforts and in June hired Derrick Walker as chief marketing officer to “create and build recognition for DXL,” Levin said. Beginning this fall, new marketing concepts will be tested in five markets and a national campaign will kick off in the spring. Most will be focused on the company’s Web site, which launched in the fall. “The direct channel is important in this space as big and tall consumers shop for apparel on the Internet 50 percent more than the general population,” he said.
In the second quarter, Casual Male Retail Group posted a profit decline on essentially flat sales.
For the three months ended July 28, net income was $1.3 million, or 3 cents a diluted share, versus $6.6 million, or 14 cents, a year ago. Sales were flat at $100.5 million compared with $100.4 million, although comparable-store sales rose 2 percent.
Citing in part “sluggish consumer spending,” the men’s retail chain revised downward its fiscal 2012 diluted earnings per share forecast at between 22 cents and 25 cents, compared with previous guidance of between 22 cents and 27 cents. The company also guided sales expectations at between $405.5 million and $410 million, with a comp projection range of 3 to 4 percent.
In a research note Friday, Richard Jaffe of Stifel Nicolaus had a hold rating on the stock, citing gross margin pressure and the costly rollout of the DXL expansion.
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