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Destination XL Net Drops in Third Quarter

Investors send up shares 9.5 percent on positive sales trends at larger DXL format.

Destination XL Group Inc. reported a broader loss for the third quarter, but saw strong response to its growing fleet of DXL big and tall superstores.

This story first appeared in the November 25, 2013 issue of WWD.  Subscribe Today.

In the three months ended Nov. 2, the company’s net loss expanded to $4.1 million, or 8 cents a diluted share, from a loss of $1.6 million, or 3 cents, in the 2012 period. Analysts expected a slightly deeper loss of 9 cents a share.

Revenues contracted 0.6 percent to $88.2 million from $88.7 million. Comparable sales rose 4.4 percent as a 6.4 percent comp increase in the company’s stores was offset by a 4.5 percent decline in its direct channel, with e-commerce up 7.9 percent, but the firm’s discontinued catalogue business off 73.3 percent. Gross margin grew to 44.5 percent of sales from 44 percent a year ago.

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Investors were drawn to the double-digit comp increases at the larger, more upscale DXL stores. The company is in the process of converting its portfolio to the new format, and the 36 stores open at least a year had a sales increase of 11.3 percent. With the addition of 38 stores that had been remodeled or relocated, revenues were up 17.7 percent.

The performance of the DXL concept helped lift shares of the Canton, Mass.-based retailer 61 cents, or 9.5 percent, to $7.06 in Nasdaq trading Friday.

DXL’s performance was also helped by its first national marketing campaign, No Man’s Land, which kicked off at the end of September and uses humor to address frustrations the larger customer faces.

David Levin, chief executive officer, said the company has seen “a dramatic and positive effect from the campaign.” Comps in October for the company’s DXL stores rose 25.3 percent. “So you can see how well these stores performed with the strength of the campaign behind them,” he said.

Levin said average transaction size in the period also increased 17.4 percent, which he attributed in part to “a greater mix of high-priced main brands as well as tailored clothing.” He said every store has a Polo Ralph Lauren shop and carries such well-known brands as True Religion, Calvin Klein and Lacoste. “Some of these brands were not even available in big and tall sizes until we opened Destination XL,” he said. “We’re pleased with the early customers’ response to our name-brand offerings, which is reflected in our average transaction size.”

Levin said a higher mix of tailored clothing is also attracting shoppers.

“In every DXL store we offer several hundred square feet dedicated to clothing. Our custom made-to-measure offering, which includes a robust selection of suits, sport coats, dress pants and shirts, is also progressing well. With all these wardrobe options available, we’re attracting a new category of customer that we call the end-of-rack shopper. They would shop at department stores, but options are limited. These are younger, smaller-waisted and more brand-conscious. Attracting the end-of-rack customer, which represents 65 percent of the total big and tall market and who tends to have a higher spend per transaction, increases our total available market.”

Levin said customers with waist sizes below a size 46 accounted for 43.5 percent of sales in October, up from 36.3 percent at the end of 2012.