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Destination Maternity Loss Less Than Expected

Emphasis on operational and financial management kept maternity apparel retailer Destination Maternity Corp.'s first-quarter loss above expectations.

Emphasis on operational and financial management kept maternity apparel retailer Destination Maternity Corp.’s first-quarter loss above expectations, but its revenue missed company guidance.

For the quarter ended Dec. 31, the Philadelphia-based firm reported a net loss of $46.9 million, or $7.86 a diluted share, versus a net loss of $352,000, or 6 cents a share, in the year-ago quarter. Excluding a noncash goodwill impairment charge of $47 million, a loss from extinguishment of debt and restructuring charges, the company recorded profit of $234,000, or 4 cents a diluted share, compared with a net loss of $352,000, or 6 cents a share.

Sales for the quarter fell 5.6 percent to $134.8 million, from $142.9 million in 2007.

The company had expected a loss of approximately 10 cents a share to break even on revenue between $136.5 million and $138.5 million.

Tightly managed inventory, controlled markdowns and expense reduction helped the firm beat earnings expectations, it said, and its weak sales performance was due mostly to a decrease in Sears Holdings Corp.’s leased department sales because of the June closure of the company’s remaining leased departments within Sears stores.

Comparable-store sales for the quarter were also lower than expected. The company, which posted a 0.5 percent decrease, was anticipating comps to come in between flat and up 1.5 percent.

“We continue to be in a strong financial position and are very focused on continuing to generate free cash flow and continuing to deleverage our balance sheet,” said chief executive officer Ed Krell. “With the very weak overall economic and retail environment, we will continue to manage our inventory and expenditures very tightly.”

For 2009, Destination Maternity said it anticipates diluted earnings per share, excluding debt and goodwill impairment charges, of between 24 and 64 cents. Including the goodwill charge, it expects a loss of between $7.24 and $7.64. Sales are expected to be in the $539.5 million to $549 million range.

Comps are expected to decrease between 1 and 3 percent for the year, and capital expenditures are expected to be between $11 and $12.5 million, down from 2008’s expenditures of $15.7 million. The company also announced that it will open approximately 14 to 18 stores during the year, including four to seven multibrand stores, and close approximately 45 to 55 stores, with about eight to 12 of these planned store closings related to openings of new multibrand stores, including Destination Maternity Superstores.