Destination XL Group turned a corner at the end of fiscal 2019, moving back into the black in the fourth quarter ended Feb. 1, 2020. But that was before the world was turned on its head by the coronavirus. With all of its stores shuttered since Tuesday, the Canton, Mass.-based men’s big and tall retailer is taking drastic steps to preserve its liquidity, including canceling spring orders and asking landlords for rent relief.
“As of today, we have canceled over $55 million of [orders] for the balance of the next couple of months and have the opportunity to address a meaningful portion of fall as well,” chief executive officer Harvey Kanter said on a conference call Thursday morning. “If our downside scenario is too great and business returns quicker than we expect, we believe we will have plenty of opportunity to chase goods” and the company has chosen this scenario to being “over-inventoried.”
Kanter said that while there has been no “material impact” to the company’s receipts from its global supply chain, “our concerns are primarily about the American consumer, and in reality, when is he going to be interested in buying apparel again.”
The ceo speculated that it could take between six and nine months “until sales normalize,” and when stores do reopen, they will do so with scaled-back operating hours and staff. As a result, he said, “We have formalized an appeal to all our landlords for relief in rent and CAM [common area maintenance] charges.”
Kanter said the company is also suspending its store re-branding program for the remainder of the fiscal year, instituted a hiring freeze in its corporate office and eliminated essentially all paid marketing efforts.
On the call, Kanter said, “This unprecedented global pandemic continues to be a fluid situation,” and while it is “just too early to determine the impact of the virus on the year,” over the past 10 days, the company has experienced “significant double-digit declines on our top line across stores and online.”
As a result, the company has taken “very aggressive steps…to mitigate the declines.”
He said that despite struggles with traffic, the company was able to post positive sales before the COVID-19 crisis, and ended the fiscal period “in better shape” than a year ago. “We delivered free cash flow of $2.4 million last year, reduced our outstanding borrowings from $56.7 million to $54.1 million. And we had $48.5 million of unused excess capital under our credit facility at the end of the year, which put us in a stronger starting position to now manage the current sales environment. Our credit facility, which is comprised of $125 million revolver and a $15 million term loan, does not expire until March 2023. In terms of our supplier base across functions, we are working through potential challenges in outgoing payments and requesting extended terms with some success early on.”
Early Thursday morning, the retailer reported net income of $2.4 million, or 5 cents a diluted share, compared to a net loss of $7.2 million, or 15 cents a share in the fourth quarter of fiscal 2018. Comparable-store sales increased 1.1 percent in the quarter while total sales rose 0.1 percent to $131.2 million.
For the year, the company reported a net loss of $7.8 million compared to a loss of $13.5 million in the prior year. Comparable-store sales for the year also increased 0.1 percent while total sales increased the same amount to hit $474 million.
The company tentatively plans to reopen its stores on March 29, but Kanter said “at this point, we believe this is likely overly optimistic.”