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Casual Male to Open Superstores in 2010

Men's wear retailer revealed plans to open three Destination XL stores in 2010.

Casual Male Retail Group Inc. will unveil a new superstore concept in the spring.

In reporting third-quarter earnings on Thursday, where the company posted a net loss of $1.4 million, or 3 cents a diluted share, the Canton, Mass.-based big and tall men’s wear retailer revealed plans to open three Destination XL stores in 2010. The concept will bring together the merchandise offered by all of the company’s existing divisions: the moderately priced Casual Male, the more-upscale Rochester Big & Tall, the B&T Factory Outlet as well as the catalogues Shoes XL and Living XL. The latter offers products in many categories that address the needs of the larger-size customer such as seat belt expanders, heavy-capacity chairs and step stools.

The first stores will be located in Chicago, Houston and a third city, where a lease has not yet been signed, David Levin, president and chief executive officer of the 485-unit chain, told WWD. They are expected to open in late May or early June. Levin said on a conference call the idea came out of the test of a new hybrid model that brought together the Casual Male and Rochester brands under one roof. The five existing hybrid stores “have met both our sales and four-wall cash flow expectations, collectively annualizing to a cash flow margin of close to 15 percent, which is up from breakeven level for each store separately the previous year,” said Dennis Hernreich, executive vice president and chief operating and financial officer.

Destination XL stores will average 10,000 to 12,000 square feet, Levin said, and will necessitate closing two to three existing Casual Male stores in each market. “So while we see a drop in store count and probably a net zero square footage growth, we anticipate that our profitability will improve dramatically,” he said.

In terms of merchandise, Levin detailed: “Instead of a limited assortment of about 15 screen Ts, Destination will offer over 60 styles. Shoes will go from 40 styles to well over 100 styles.”

If the concept is successful, the company will “start a rollout process over the next five years. Where and when we open will be dependent on existing terms of the stores that we would need to close,” he said. And as to how many superstores the company expects to open long term, he said: “That is still a work-in-progress.” But so far, Levin said, the company has identified 50 markets for a Destination XL and plans call for opening 10 stores a year beginning in 2011.

“The reality is, we’re not going to be opening any more Rochester stores or any more Casual Male stores in the future. Everything will be working towards this goal of consolidating into the bigger box,” he said.

Over the past two years, Casual Male’s sales have dropped by around $70 million, Levin said. “We believe, when the retail environment gets healthy again, we will have the opportunity to recapture those sales, and with our new expense structure firmly in place, we anticipate strong cash flow in operating margins over time.”

In the third quarter ended Oct. 31, the company’s $1.4 million loss was better than the loss of $3.2 million, or 8 cents, logged in the 2008 quarter but 1 cent below consensus estimates. In the period, sales slid 11.3 percent, to $88.7 million from $100 million in the prior-year quarter, and slipped 10.6 percent on a same-store basis, with the Casual Male business down 8.9 percent and the higher-end Rochester unit off 24.6 percent. However, gross margin picked up 50 basis points, to 42.7 percent of sales from 42.2 percent. Selling, general and administrative costs declined 17.4 percent quarter-on-quarter, to $50.8 million.

The company said it was “cautious” about sales trends for the fourth quarter, projecting a revenue decline of between 11 and 12 percent.

For the year to date, net income totaled $2.6 million, or 6 cents, versus a year-ago loss of $1.2 million, or 3 cents. Sales slipped 11.4 percent to $284.5 million from $321.1 million.