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DXL Excels as Casual Male Logs Loss

Larger, more upscale format generates same-store sales increase of 13.8 percent in third quarter.

Interior of the Casual Male superstore in Las Vegas, Nevada.

Casual Male Retail Group Inc. fell to a third-quarter loss even as its decision to focus on the Destination XL format produced promising results.

The Canton, Mass.-based big and tall retailer in August said it would close all the Casual Male stores by the end of 2015 to concentrate on Destination XL, which has larger stores and a broader, more upscale merchandise assortment.

 

David Levin, president and chief executive officer, reported that, with overall comparable-store sales up 1.5 percent in the third quarter, DXL comps rose 13.8 percent versus a flat comp performance by Casual Male. Direct sales were down 3 percent, reflecting 11 percent growth in e-commerce offset by lower catalogue sales as the company transitions to greater emphasis on the higher-margin Internet business.

 

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In the three months ended Oct. 27, the company registered a net loss of $1.6 million, or 3 cents a diluted share. That result duplicated the loss in the 2011 quarter but fell 3 cents below the break-even earnings per share tally expected, on average, by analysts.

Sales slipped slightly, dropping 0.3 percent to $88.7 million from $89 million in last year’s period. Gross margin fell 100 basis points to 44 percent of sales from 45 percent a year ago. Unseasonably warm weather was cited for the disappointing top-line showing.

On a Friday conference call with analysts, Dennis Hernreich, chief operating and financial officer, noted that the accelerated rollout of DXL had also contributed to weakness in the Casual Male stores.

 

“Casual Male stores which are in close proximity to an existing DXL store location continue to experience sales erosion, reporting negative comparable sales for quarter three of approximately 4 percent,” he said. “The other Casual Male XL stores, on the other hand, generated an approximate 1 percent sales increase.”

Levin said that “customers who have shopped at Destination XL absolutely love it. The stores are upscale and aesthetically pleasing and most importantly we design them around the needs of our customers.”

A typical DXL store carries about 2,000 items versus 600 at Casual Male, as well as more private label and name brands. It also incorporates some of the more upscale names carried at the company’s Rochester stores — such as Polo, Lacoste, Michael Kors and Robert Graham — and recently began carrying Tommy Hilfiger on an exclusive basis in the big and tall market. “The brand has already been selling quite well on our destinationxl.com site,” he added.

At the end of the quarter, the firm operated 386 Casual Male stores, a figure that will drop by 33 before the end of the fiscal year and another 120, to about 233, by the end of fiscal 2013. The DXL store count, at 34 as the third quarter ended, is now at 39 and will hit 48 by the end of the year. DXL’s contribution to corporate revenues rose to 14 percent during the quarter and is expected to leap to 25 percent during the current fourth quarter. DXL stores average about 10,000 square feet, about three times the size of a typical Casual Male unit.

The conversion hasn’t been cheap, subtracting about 4 cents from EPS in the third quarter and contributing to the company’s reported loss.

Citing the poor third-quarter performance and the anticipated negative impact of Hurricane Sandy on its fleet of stores, which are heavily concentrated in the Northeast, the company lowered full-year EPS guidance to a range of between 17 and 20 cents versus prior estimates of a 22- to 25-cent result, implying fourth-quarter EPS of between 13 and 16 cents.

For the nine months, net income fell 79.2 percent to $1.9 million, or 4 cents a diluted share, as revenues were flat at $284.8 million.

Shares ended the trading day at $3.42, up 11 cents, or 3.3 percent.