Destination XL slipped into the red in the third quarter as lower traffic took a bite out of business.
And with the situation not expected to significantly improve for the remainder of the year, the company said it will halt its brand campaign and slow the pace of planned store openings.
On Friday, the Canton, Mass.-based men’s big and tall retailer reported a net loss of $1.8 million, or 3 cents a diluted share, compared to net income of $4 million, or 6 cents a diluted share in the same period last year.
Total sales fell 9.8 percent to $107.5 million from $119.2 million in the prior-year period. Comparable-store sales fell 11.3 percent.
Adjusted EBITDA was $1 million, or 1 percent of sales, as compared to $8.6 million, or 7.3 percent of sales in the third quarter of fiscal 2023.
“DXL’s business continued to be challenged in the third quarter by consumer spending headwinds, which resulted in lower traffic to our stores and lower conversion online,” said Harvey Kanter, president and chief executive officer. “The consumer has been very price conscious, and our customers are gravitating toward our more moderate and entry-level price points. Despite these challenges, we have maintained our disciplined operating regimen, and we have avoided a material erosion in merchandise margin, while keeping our inventory position healthy and controlling our operating expenses.
“As we head into the fourth quarter, we will remain focused on achieving profitable sales, generating free cash flow and maintaining a healthy balance sheet. While we expect that consumer spending headwinds will persist into the fourth quarter, we are optimistic,” he continued. “With inflation stabilizing, interest rates coming down and the election now behind us, we believe that consumer sentiment will recover over time. Until our big and tall consumer is ready to more actively engage with DXL, we will continue to look for opportunities to drive sales through a mix of promotional activities and limited advertising. As I provide an update on our strategic initiates, it is important to note that we are proceeding cautiously until the macroenvironment improves by pausing our brand campaign and slowing the velocity of new store openings.”
In the second quarter, the retailer began testing a new brand campaign in Boston, Detroit and St. Louis, in hopes of raising the visibility of the company. While the results were positive, resulting in increased traffic and customer acquisition, management has decided to pivot to more traditional marketing for the remainder of the year such as videos on its social media platforms.
Turning to store development, the company said earlier this year that it would add units to address the frustration the big and tall customer has expressed about having limited access to Destination XL stores.
During the third quarter, the company opened two new stores for a total of four in the year to date, with four additional stores planned for the fourth quarter. In fiscal 2025, the company said, it will now target the addition of eight new stores, down from the previously expected 10 units.
One bright spot the company pointed to was the early strength of its DXL’s men’s big and tall assortment on Nordstrom’s digital marketplace platform. “We…currently have 37 brands and over 1,400 styles available on the platform, with plans for an additional 500 styles in the next month,” Kanter said. “We believe this collaboration will allow us to bring the DXL experience beyond our four walls and directly to the Nordstrom customer, thereby further extending DXL’s relationship with the female consumer.”
Kanter concluded: “Pulling back on parts of our initiatives was prudent to ensure that we remain fiscally responsible with our investment spending and remain focused on near-term profitability and positive free cash flow.”
Looking ahead, Destination XL revised its full-year guidance and now expects sales for fiscal 2024 to be at the low end of previous guidance, or about $470 million. Adjusted EBITDA guidance was also brought down to 4.5 percent to 6 percent while sales for the fiscal year are now expected to reflect a comparable sales decrease of approximately 10 percent.
