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DESTINATION XL GROUP, INC. 10-Q 2016

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
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.

 

 

2


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.

 

 

 

3


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.

 

 

 

4


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.

 

 

 

5


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.

 

 

 

6


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.

7


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.

The fair value of indefinite-lived assets, which consists of the Company’s “Rochester” trademark, is measured on a non-recurring basis in connection with the Company’s annual impairment test. The fair value of the trademark is determined using a projected discounted cash flow analysis based on unobservable inputs and are classified within Level 3 of the valuation hierarchy. See Intangibles above.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and short-term borrowings approximate fair value because of the short maturity of these instruments.

 

Accumulated Other Comprehensive Income (Loss) - (“AOCI”)

Other comprehensive income (loss) includes amounts related to foreign currency and pension plans and is reported in the Consolidated Statements of Comprehensive Income (Loss). Other comprehensive income and reclassifications from AOCI for the three and nine months ended October 29, 2016 and October 31, 2015, respectively, were as follows: