WWD.com/business-news/financial/dxl-expects-higher-costs-6808512/
government-trade
government-trade

Destination XL Group Expects Higher Costs

Guides Wall Street below estimates based on marketing, conversion costs.

The Destination XL store in Las Vegas.
Appeared In
Special Issue
Men'sWeek issue 02/28/2013

Rebranding doesn’t come without a cost.

Shares of Destination XL Group Inc., formerly Casual Male Retail Group Inc., bounced back from declines early in the day to rise 1 cent, or 0.2 percent, and close at $4.77 in Nasdaq trading Wednesday after the big-and-tall retailer issued preliminary fourth-quarter results and initiated 2013 guidance that fell short of Wall Street’s expectations. Much of the downside for both periods was attributed to costs related to the company’s accelerated conversion to the Destination XL superstore format and its plans to discontinue the Casual Male chain by the end of 2015.

Adjusted earnings for the fourth quarter are expected to be 8 cents a diluted share while revenues are forecast to land at $114.9 million, versus analysts’ consensus expectations of earnings per share of 10 cents and sales of $115.2 million. David Levin, president and chief executive officer, cited mild winter weather and “some delays in DXL store openings” for the shortfall while highlighting the 15 percent increase in comparable-store sales at DXL in the period. Comps were down 2.3 percent at Casual Male stores and rose 13 percent on the Canton, Mass.-based company’s e-commerce platform.

 

RELATED CONTENT: Click Here for More Earnings Coverage >>

This year, the company plans to more than double the number of DXL stores to between 105 and 112 from 49 today. At the same time, it will close between 110 and 119 Casual Male XL and Rochester stores, which typically have smaller footprints and narrower assortments than the DXL superstores. Casual Male and Rochester units currently number about 390.

In addition, after what Levin described as “highly successful test marketing” in five different markets in late 2012, the company this spring will debut the first marketing campaign, encompassing television, radio and digital media, for its recently rebranded company. The official name change went into effect on Monday.

However, costs associated with the rebranding will elevate annual selling, general and administrative costs, moving them upward about $17 million, and exact a toll on earnings, expected to be break-even on an adjusted EPS basis versus Wall Street’s earlier expectations of EPS of 21 cents. Revenues are expected to land between $415 million and $420 million, versus current estimates of $425.5 million.

“At the same time, our substantial investments this year will yield vastly improved profitability and cash flow beginning in 2014,” Levin said. “Because we will have a significantly greater number of DXL stores in operation, our new marketing campaign should have a much greater impact on our performance in 2014 and beyond.”

Destination XL said it expects to expand its revenues to $600 million and operating margins to more than 10 percent in the long term. With an operating loss in the third quarter, the year-to-date operating margin was 2.4 percent in 2012.

The company, the largest big-and-tall retailer in the U.S., changed its ticker symbol on the Nasdaq exchange to DXLG from CMRG on Dec. 5. It released preliminary results in advance at its appearance Thursday at the KeyBanc Capital Markets Consumer Conference in New York.

Fourth-quarter and year-end financial results are scheduled to be released on March 15.