Destination XL is not immune to the tough retail climate in the U.S. and it is looking to e-commerce to bolster its business as it scales back its plans to expand brick and mortar.
In a conference call following the release of the company’s fourth-quarter and fiscal 2016 year-end results Monday morning, David Levin, president and chief executive officer of the Canton, Mass.-based big and tall men’s retailer, said: “We’ve decided to slow our 2017 growth to 20 stores compared to our 30 stores opened in 2016, and we’ll continue to slow the growth of new stores for the foreseeable future.”
There are now 205 DXL superstores around the country and they account for 76 percent of the company’s overall sales, a number that is expected to reach 80 percent by the end of 2017.
At the same time, Levin said the company will close approximately 19 Casual Male locations this year. There are 130 Casual Male stores still in operation.
With store growth slowing, the company is turning to e-commerce to fill the void. DXL recently hired Sahal Laher, a former Brooks Brothers executive, as chief digital and information officer. At Brooks Brothers, he was executive vice president of digital innovation and technology and global chief information officer and “supported a significant increase in sales through Brooks Brothers’ digital channel,” Levin said.
E-commerce now represents only 15 percent of total sales.
Levin said Laher will work to attract new customers, retain existing customers through “targeted engagement and one-on-one offerings,” and work to expand the company’s business relationships with other brands such as Amazon.
Additionally, DXL will launch its first mobile app during the second quarter, which is also expected to enhance the e-commerce business, he added.
Marketing is also seen as a key initiative this year, Levin said, and the company will increase its budget by 40 percent and reinstitute TV advertising on April 2. The company had opted to eliminate its fall ads which resulted in “a slight decline in our brand awareness scores.” However, “our greatest opportunity is the fact that six out of 10 big guys still do not know who we are.”
For the three months ended Jan. 28, net income was $1.8 million, or 4 cents a diluted share, against a net loss of $1.4 million, or 3 cents, a year ago. On an adjusted basis, diluted EPS was 2 cents, compared with an adjusted loss of 2 cents a year ago. Net sales slipped 1.1 percent to $122.6 million from $124.0 million. The company said DXL comparable-store sales were down 1.9 percent for the quarter.
Wall Street was expecting earnings per share of 1 cent on sales of $125.77 million.
The company said earnings before interest, taxes, depreciation and amortization for the quarter rose 48.2 percent to $10.8 million from $7.3 million a year ago. Levin said the company “fully funded our DXL store expansion from free cash flow and grew EBITDA nearly 36 percent.”
Wunderlich Securities Inc. analyst Eric Beder has a “buy” rating for shares of Destination XL, and a $4 target price.
“With store growth inevitably decelerating, and with a majority of big and tall males still not aware of the company, we view the marketing spend as an appropriate strategy and believe the returns can be impressive,” Beder said.