Destination XL Warns on Profit

Dennis Hernreich, chief operating officer and CFO, is leaving the firm for "new challenges."

Destination XL Group Friday joined the chorus of retailers tamping down their fourth-quarter guidance based on poor traffic and bad weather.

The Canton, Mass.-based big & tall men’s wear retailer also said that Dennis Hernreich, executive vice president, chief operating officer and chief financial officer, was leaving the firm. John Kyees, a member of DXL’s board and former cfo of Urban Outfitters Inc., will serve as interim cfo until a permanent successor is named.

Additionally, the company expanded the size of its board to 10 members with the addition of Will Mesdag as a director. Mesdag is managing partner of Red Mountain Capital Partners LLC, a Los Angeles-based investment advisory firm that, with 9.5 percent of the shares outstanding, is DXL’s largest shareholder.

DXL said that its full-year loss, earlier expected to be about 5 cents a diluted share, will come in between 11 and 13 cents, implying a fourth-quarter loss of 1 to 3 cents as opposed to a previously anticipated profit of about 5 cents. Expectations for full-year sales were trimmed $7 million to about $388 million, suggesting fourth-quarter sales of about $108.6 million.

Fourth-quarter comparable sales are expected to increase 3.9 percent, and 2.9 percent for the year. The full-year guidance was previously for a comp rise of 5 percent.

Destination XL has been converting its fleet of Casual Male stores to its larger, more branded DXL format. Stores operating under the DXL concept for more than a year are expected to generate stronger results, with comps for the quarter up 13.9 percent and for the year up 12.4 percent.

“During the key selling weeks between Black Friday and Christmas, store traffic was down approximately 4 percent from the prior year as a result of weather in some geographies as well as continued sluggish consumer buying behavior,” said David Levin, president and chief executive officer of the company. “This decrease in traffic, disproportionately impacted by the fact that the 2013 holiday season was shorter by six days compared with 2012, negatively affected Q4 sales.”

Additionally, a 10 percent increase in traffic during the company’s seven-week fall marketing campaign wasn’t sustained into the peak of the holiday selling period.

Addressing Mesdag’s appointment to DXL’s board, Seymour Holtzman, chairman, said, “Since becoming a shareholder, Will has been a strong supporter of our efforts to roll out the DXL concept. His deep experience in the capital markets and strong financial acumen, as well as his wealth of experience serving as a director for several public companies, will be valuable assets to the company as we execute on our strategy to profitably grow the business and enhance shareholder value.”

Mesdag spent 21 years at Goldman Sachs and was a securities lawyer at Ballard, Spahr, Andrews & Ingersoll.

Hernreich’s future plans aren’t known. He said that, having been involved in the company’s implementation of the Destination XL concept, “I now desire to pursue new challenges and opportunities.”

In midday trading Friday, shares of DXL were down 3.3 percent to $5.26 as the S&P 500 Retailing Industry Group contracted 2.4 percent to 869.29.