dxlg-10q_20161029.htm

Casual Male Retail Group (CMRG)

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DESTINATION XL GROUP, INC. 10-Q 2016

Documents found in this filing:

dxlg-10q_20161029.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the Quarterly Period Ended October 29, 2016

Commission File Number 01-34219

DESTINATION XL GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware		04-2623104
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

555 Turnpike Street, Canton, MA		02021
(Address of principal executive offices)		(Zip Code)

(781) 828-9300

(Registrant’s telephone

number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s common stock outstanding as of November 11, 2016 was 50,823,803.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

DESTINATION XL GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

	October 29, 2016			January 30, 2016
	(Fiscal 2016)			(Fiscal 2015)

ASSETS
Current assets:
Cash and cash equivalents	$	6,344		$	5,170
Accounts receivable		8,363			4,721
Inventories		128,181			125,014
Prepaid expenses and other current assets		8,959			8,254
Total current assets		151,847			143,159

Property and equipment, net of accumulated depreciation and amortization		125,480			124,962

Other assets:
Intangible assets		2,333			2,669
Other assets		3,933			3,557
Total assets	$	283,593		$	274,347

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	7,725		$	7,155
Current portion of deferred gain on sale-leaseback		1,465			1,465
Accounts payable		29,712			30,684
Accrued expenses and other current liabilities		29,877			33,778
Borrowings under credit facility		62,358			41,984
Total current liabilities		131,137			115,066

Long-term liabilities:
Long-term debt, net of current portion		13,188			19,003
Deferred rent and lease incentives		34,910			30,934
Deferred gain on sale-leaseback, net of current portion		12,090			13,189
Deferred tax liability		222			196
Other long-term liabilities		5,851			7,555
Total long-term liabilities		66,261			70,877

Commitments and contingencies

Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued		—			—
Common stock, $0.01 par value, 100,000,000 shares authorized, 61,681,817 and 61,692,285 shares issued at October 29, 2016 and January 30, 2016, respectively		617			617
Additional paid-in capital		304,165			302,727
Treasury stock at cost, 10,877,439 shares at October 29, 2016 and January 30, 2016		(87,977	)		(87,977	)
Accumulated deficit		(124,350	)		(120,311	)
Accumulated other comprehensive loss		(6,260	)		(6,652	)
Total stockholders' equity		86,195			88,404
Total liabilities and stockholders' equity	$	283,593		$	274,347

The accompanying notes are an integral part of the consolidated financial statements.

DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	October 29, 2016			October 31, 2015			October 29, 2016			October 31, 2015
	(Fiscal 2016)			(Fiscal 2015)			(Fiscal 2016)			(Fiscal 2015)

Sales	$	101,871		$	99,625		$	327,637		$	318,177
Cost of goods sold including occupancy costs		56,633			54,761			177,790			171,191
Gross profit		45,238			44,864			149,847			146,986

Expenses:
Selling, general and administrative		41,383			42,414			129,051			131,004
Depreciation and amortization		7,494			7,076			22,363			20,526
Total expenses		48,877			49,490			151,414			151,530

Operating loss		(3,639	)		(4,626	)		(1,567	)		(4,544	)

Interest expense, net		(779	)		(783	)		(2,346	)		(2,290	)

Loss before provision for income taxes		(4,418	)		(5,409	)		(3,913	)		(6,834	)
Provision for income taxes		34			63			126			191


Net loss	$	(4,452	)	$	(5,472	)	$	(4,039	)	$	(7,025	)


Net loss per share - basic and diluted	$	(0.09	)	$	(0.11	)	$	(0.08	)	$	(0.14	)

Weighted-average number of common shares outstanding:
Basic		49,552			49,116			49,532			49,072
Diluted		49,552			49,116			49,532			49,072

The accompanying notes are an integral part of the consolidated financial statements.

DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	October 29, 2016			October 31, 2015			October 29, 2016			October 31, 2015
	(Fiscal 2016)			(Fiscal 2015)			(Fiscal 2016)			(Fiscal 2015)
Net loss	$	(4,452	)	$	(5,472	)	$	(4,039	)	$	(7,025	)

Other comprehensive income before taxes:
Foreign currency translation		(176	)		(32	)		(319	)		30
Pension plans		237			256			711			769
Other comprehensive income before taxes		61			224			392			799
Tax provision related to items of other comprehensive income		—			—			—			—
Other comprehensive income, net of tax		61			224			392			799
Comprehensive loss	$	(4,391	)	$	(5,248	)	$	(3,647	)	$	(6,226	)

The accompanying notes are an integral part of the consolidated financial statements.

DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

																	Accumulated
						Additional											Other
	Common Stock					Paid-in		Treasury Stock						Accumulated			Comprehensive
	Shares			Amounts		Capital		Shares			Amounts			Deficit			Income (Loss)			Total
Balance at January 30, 2016		61,692		$	617	$	302,727		(10,877	)	$	(87,977	)	$	(120,311	)	$	(6,652	)	$	88,404

Stock compensation expense							1,076														1,076
Board of Directors compensation		48					362														362
Cancellations of restricted stock, net of issuances		(59	)
Accumulated other comprehensive income (loss):
Pension plan																		711			711
Foreign currency																		(319	)		(319	)
Net loss															(4,039	)					(4,039	)
Balance at October 29, 2016		61,681		$	617	$	304,165		(10,877	)	$	(87,977	)	$	(124,350	)	$	(6,260	)	$	86,195

The accompanying notes are an integral part of the consolidated financial statements.

DESTINATION XL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	For the Nine Months Ended
	October 29, 2016			October 31, 2015
	(Fiscal 2016)			(Fiscal 2015)
Cash flows from operating activities:
Net loss	$	(4,039	)	$	(7,025	)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Amortization of deferred gain on sale-leaseback		(1,099	)		(1,099	)
Amortization of deferred debt issuance costs		208			211
Depreciation and amortization		22,363			20,526
Deferred taxes, net of valuation allowance		26			79
Stock compensation expense		1,076			1,582
Board of Directors stock compensation		362			402

Changes in operating assets and liabilities:
Accounts receivable		(3,642	)		(2,463	)
Inventories		(3,167	)		(18,092	)
Prepaid expenses and other current assets		(705	)		(572	)
Other assets		(376	)		(143	)
Accounts payable		(972	)		348
Deferred rent and lease incentives		3,976			2,371
Accrued expenses and other liabilities		(5,959	)		(1,176	)
Net cash provided by (used for) operating activities		8,052			(5,051	)

Cash flows from investing activities:
Additions to property and equipment, net		(21,799	)		(25,352	)
Net cash used for investing activities		(21,799	)		(25,352	)

Cash flows from financing activities:
Proceeds from the exercise of stock options		—			101
Principal payments on long-term debt		(5,363	)		(5,624	)
Costs associated with debt issuances		—			(15	)
Net borrowings under credit facility		20,284			36,955
Net cash provided by financing activities		14,921			31,417
Net increase in cash and cash equivalents		1,174			1,014
Cash and cash equivalents:
Beginning of period		5,170			4,586
End of period	$	6,344		$	5,600

The accompanying notes are an integral part of the consolidated financial statements.

DESTINATION XL GROUP, INC.

Notes to Consolidated Financial Statements

1. Basis of Presentation

In the opinion of management of Destination XL Group, Inc., a Delaware corporation (formerly known as Casual Male Retail Group, Inc. and, collectively with its subsidiaries, referred to as the “Company”), the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the interim financial statements. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with the notes to the Company’s audited consolidated financial statements for the fiscal year ended January 30, 2016 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 18, 2016.

The information set forth in these statements may be subject to normal year-end adjustments. The information reflects all adjustments that, in the opinion of management, are necessary to present fairly the Company’s results of operations, financial position and cash flows for the periods indicated. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s business historically has been seasonal in nature, and the results of the interim periods presented are not necessarily indicative of the results to be expected for the full year.

The Company’s fiscal year is a 52- or 53- week period ending on the Saturday closest to January 31. Fiscal 2016 and fiscal 2015 are 52-week periods ending January 28, 2017 and January 30, 2016, respectively.

Segment Information

The Company reports its operations as one reportable segment, Big & Tall Men’s Apparel, which consists of two principal operating segments: its retail business and its direct business. The Company considers its operating segments to be similar in terms of economic characteristics, production processes and operations, and have therefore aggregated them into a single reporting segment, consistent with its omni-channel business approach. The direct operating segment includes the operating results and assets for LivingXL^® and ShoesXL^®.

Intangibles

At October 29, 2016, the “Casual Male” trademark had a carrying value of $0.7 million and is considered a definite-lived asset. The Company is amortizing the remaining carrying value on an accelerated basis, consistent with projected cash flows through fiscal 2018, its estimated remaining useful life.

The Company’s “Rochester” trademark is considered an indefinite-lived intangible asset and has a carrying value of $1.5 million. During the first nine months ended October 29, 2016, no event or circumstance occurred which would cause a reduction in the fair value of the Company’s reporting units, requiring interim testing of the Company’s “Rochester” trademark.

Fair Value of Financial Instruments

ASC Topic 825, Financial Instruments, requires disclosure of the fair value of certain financial instruments. ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements.

The valuation techniques utilized are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities.

The Company utilizes observable market inputs (quoted market prices) when measuring fair value whenever possible.

The fair value of long-term debt is classified within Level 2 of the valuation hierarchy. At October 29, 2016, the fair value approximates the carrying amount based upon terms available to the Company for borrowings with similar arrangements and remaining maturities.

Casual Male Retail Group (CMRG)

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