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Specialty Retailer Destination XL Is On Growth Spree

- By Mrinalini Chaudhuri

Destination XL Group Inc. ((DXLG) is the largest omni-channel specialty retailer of big and tall men's apparel. With more than 2,000 private label and name-brand styles to choose from, big and tall customers are provided with a unique blend of wardrobe solutions not available at traditional retailers. The retailer operates under five brands: Destination XL (DXL), Casual Male XL, Rochester Clothing, ShoesXL and LivingXL.


The company reported solid first quarter results and is poised to grow. It witnessed strong sales and increasing the number of stores.

First quarter results

During the first quarter, total sales increased by 3.3% and were $107.9 million, which was $104.4 million in the prior year quarter.

For the first quarter of fiscal 2016, gross margin was 46.1%.

SG&A expenses for the first quarter were 38.3% of sales, which was 39.7% in the prior year quarter.

EBITDA for the first quarter was $8.4 million, up from $6.8 million during the prior year quarter.

Capex for the first quarter of fiscal 2015 of $9.6 million consisted of $7.3 million for new DXL stores and $2.3 million for infrastructure projects.

As of April 30, the company had cash and cash equivalents of $5.9 million.

Expectations for 2016

Range

Total sales

To be in the range of $465.0 million to $472.0 million

Total comparable sales increase

To be in the range of 4.8% to 5.5%

Gross profit margin

To be in the range of 46.2% to 46.5%

EBITDA

To be in the range of $31 million to $35.0 million

Capex

To be around $30.0 million

Borrowings at the end of fiscal 2016

To be in the range of $59.0 million to $64.0 million

No. of stores

To open approximately 28 DXL retail and 3 DXL outlet stores and close approximately 26 Casual Male XL retail stores and 3 Casual Male XL outlet stores



Strong attributes of the quarter:

  • Solid growth in sales.
  • Profitability.
  • DXL retail stores delivered solid sales.



Focus:

  • Marketing campaigns.
  • Continue to drive strong sales growth.
  • Expanding its presence.
  • Scaling business through higher volumes.
  • Further increase operating margins.
  • Capitalize on a more advantageous cost structure.



On a concluding note

The company expects to grow the number of its DXL stores from 140 at the end of fiscal 2014 to approximately 230 locations by the end of 2017 and to approximately 400 locations in subsequent years. The innovative marketing efforts have helped drive growth in the Destination XL customer base, both overall and on a per-store basis.

Through the expansion of this new destination concept, and the growth of its e-commerce platform, DXL is positioned for accelerated long-term growth in revenue and increased profitability. The company expects sales growth to improve in the second quarter with the arrival of a consistent, warmer weather pattern, which will drive traffic to both stores and website. The company is at a very good pace right now and I think adding this company to the portfolio is going to create shareholder returns.

Disclosure: I do not hold any position in the company.

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This article first appeared on GuruFocus.