The corporate restructuring instituted earlier this year is starting to pay off for Destination XL Group.
In the third quarter, the men’s big and tall retailer cut its losses and improved its comparable-store sales, prompting it to update its earnings guidance for the fiscal year. But its search for a new chief executive officer continues as the countdown to the departure of current chief David Levin approaches on Dec. 31. In the case that the retailer can’t find a replacement by yearend, Levin will transition to acting ceo from Jan. 1 to April 30 for $200,000 a month. The company has an option to renew that arrangement until June 30, 2019, Levin said on the investors’ call.
The retailer said it terminated its deal with Heidrick & Struggles International Inc. to lead the search process on Oct. 1 and is working with Russell Reynolds Associates to lead the process and expects a successor to be named by the end of the first quarter of fiscal 2019.
As reported, Levin is expected to resign as an officer and director of the company on Jan. 1. The company expects to incur an aggregate charge of approximately $2.1 million for ceo transition costs in fiscal 2018 and an additional $1.6 million in fiscal 2019 and fiscal 2020.
Turning to the third quarter, the retailer cut its net losses to $2 million, or 4 cents a diluted share, from a loss of $5.7 million, or 12 cents a diluted share, in the year-ago period. Adjusted earnings before interest, taxes, depreciation and amortization were $6.6 million from $2.8 million in the prior-year quarter. Comparable-store sales increased 3.4 percent and overall sales rose 3.2 percent from $103.7 million to $107.1 million as store traffic improved and customers responded to the addition of more-fashionable merchandise.
“This was our fourth consecutive quarter of solid performance and progress in our business,” Levin said. “Our sales momentum from the fourth quarter of last year has continued through the spring, summer and fall selling seasons. We registered another quarter of meaningful earnings improvement, while successfully executing against our strategic initiatives.”
He pointed to the “lower promotional activity and well-managed expenses that resulted in adjusted EBITDA that is more than double the third quarter last year. We also launched our enhanced e-commerce web site and continue to strengthen the DXL brand with a focus on comfort, style and fit. Our merchandise assortment is well-positioned for the all-important holiday season and we are confident our momentum will continue into 2019.”
As reported, in May, the company instituted a corporate restructuring intended to improve its profitability by eliminating 56 positions, or 15 percent of its corporate workforce. This resulted in an aggregate charge of $1.9 million, of which $300,000 was incurred in the third quarter for employee severance and onetime termination benefits.
As a result of the restructuring, the company expects to realize savings of approximately $5.6 million in selling, general and administrative expenses in fiscal 2018.
As a result of the improved showing, the company updated its guidance for fiscal 2018 and is projecting sales of $470 million to $474 million, with a comparable-store sales increase of 2.5 to 3.5 percent, up from the previous guidance of $462 million to $472 million, and projected comp gains of 1 to 3 percent. Net losses on a GAAP basis are expected to fall to $9.8 million to $12.8 million, an improvement from the previous guidance of $13.2 million to $18.2 million.
Destination operates 343 stores under the DXL, Casual Male and Rochester Big & Tall names.