UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 30,29, 20212022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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) | (I.R.S. Employer |
555 Turnpike Street Canton, MA | 02021 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (781) 828-9300
Securities registered pursuant to Section 12(b) of the Act.
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value | DXLG | The Nasdaq Stock Market LLC |
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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| ☐ |
| Accelerated filer | ☒ | |
Non-accelerated filer |
| ☐ | ||||
|
|
| Smaller reporting company |
|
| |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 12, 2021,11, 2022, the registrant had 63,254,04662,469,259 shares of common stock, $0.01 par value per share, outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
DESTINATION XL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
|
| October 30, 2021 |
|
| January 30, 2021 |
|
| October 29, 2022 |
|
| January 29, 2022 |
| ||||
|
| (Fiscal 2021) |
|
| (Fiscal 2020) |
|
| (Fiscal 2022) |
|
| (Fiscal 2021) |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 6,937 |
| $ | 18,997 |
|
| $ | 23,485 |
|
| $ | 15,506 |
| |
Accounts receivable |
| 1,604 |
| 6,416 |
|
|
| 1,016 |
|
|
| 2,110 |
| |||
Inventories |
| 82,284 |
| 85,028 |
|
|
| 106,816 |
|
|
| 81,764 |
| |||
Prepaid expenses and other current assets |
|
| 6,926 |
|
| 3,689 |
|
|
| 8,507 |
|
|
| 6,615 |
| |
Total current assets |
| 97,751 |
| 114,130 |
|
|
| 139,824 |
|
|
| 105,995 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Non-current assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Property and equipment, net of accumulated depreciation and amortization |
| 45,769 |
| 56,552 |
|
|
| 39,617 |
|
|
| 44,442 |
| |||
Operating lease right-of-use assets |
| 118,684 |
| 134,321 |
|
|
| 125,903 |
|
|
| 127,812 |
| |||
Deferred income taxes, net of valuation allowance |
|
| 33,480 |
|
|
| — |
| ||||||||
Intangible assets |
| 1,150 |
| 1,150 |
|
|
| 1,150 |
|
|
| 1,150 |
| |||
Other assets |
|
| 567 |
|
| 602 |
|
|
| 563 |
|
|
| 559 |
| |
Total assets |
| $ | 263,921 |
| $ | 306,755 |
|
| $ | 340,537 |
|
| $ | 279,958 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
|
|
|
|
|
| ||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
| ||||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts payable |
| $ | 29,765 |
| $ | 27,091 |
|
| $ | 26,564 |
|
| $ | 25,165 |
| |
Accrued expenses and other current liabilities |
| 32,753 |
| 24,825 |
|
|
| 34,236 |
|
|
| 35,102 |
| |||
Operating leases, current |
| 37,150 |
| 43,598 |
|
|
| 36,711 |
|
|
| 35,191 |
| |||
Borrowings under credit facility |
|
| — |
|
| 59,521 |
| |||||||||
Total current liabilities |
|
| 99,668 |
|
| 155,035 |
|
|
| 97,511 |
|
|
| 95,458 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Long-term liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Long-term debt |
| — |
| 14,869 |
| |||||||||||
Operating leases, non-current |
| 112,252 |
| 135,819 |
|
|
| 110,997 |
|
|
| 120,414 |
| |||
Other long-term liabilities |
|
| 4,268 |
|
| 5,109 |
|
|
| 4,585 |
|
|
| 5,867 |
| |
Total long-term liabilities |
|
| 116,520 |
|
| 155,797 |
|
|
| 115,582 |
|
|
| 126,281 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Stockholders' equity (deficit): |
|
|
|
|
|
| ||||||||||
Preferred stock, $0.01 par value, 1,000,000 shares authorized, NaN issued |
| — |
| — |
| |||||||||||
Common stock, $0.01 par value, 125,000,000 shares and 100,000,000 authorized at October 30, 2021 and January 30, 2021, respectively, 76,777,738 and 64,656,384 shares issued at October 30, 2021 and January 30, 2021, respectively |
| 768 |
| 647 |
| |||||||||||
Stockholders' equity: |
|
|
|
|
|
| ||||||||||
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued |
|
| — |
|
|
| — |
| ||||||||
Common stock, $0.01 par value, 125,000,000 shares authorized, 78,057,366 and 77,025,419 shares issued at October 29, 2022 and January 29, 2022, respectively |
|
| 781 |
|
|
| 770 |
| ||||||||
Additional paid-in capital |
| 319,439 |
| 314,747 |
|
|
| 320,457 |
|
|
| 319,511 |
| |||
Treasury stock at cost, 12,755,873 shares at October 30, 2021 and January 30, 2021 |
| (92,658 | ) |
| (92,658 | ) | ||||||||||
Treasury stock at cost, 15,625,172 shares and 12,755,873 shares at October 29, 2022 and January 29, 2022, respectively |
|
| (105,386 | ) |
|
| (92,658 | ) | ||||||||
Accumulated deficit |
| (173,788 | ) |
| (220,592 | ) |
|
| (83,076 | ) |
|
| (163,879 | ) | ||
Accumulated other comprehensive loss |
|
| (6,028 | ) |
|
| (6,221 | ) |
|
| (5,332 | ) |
|
| (5,525 | ) |
Total stockholders' equity (deficit) |
|
| 47,733 |
|
| (4,077 | ) | |||||||||
Total liabilities and stockholders' equity (deficit) |
| $ | 263,921 |
| $ | 306,755 |
| |||||||||
Total stockholders' equity |
|
| 127,444 |
|
|
| 58,219 |
| ||||||||
Total liabilities and stockholders' equity |
| $ | 340,537 |
|
| $ | 279,958 |
|
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 |
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||||||||||||
|
| October 30, 2021 |
|
| October 31, 2020 |
|
| October 30, 2021 |
|
| October 31, 2020 |
|
| October 29, 2022 |
|
| October 30, 2021 |
|
| October 29, 2022 |
|
| October 30, 2021 |
| ||||||||
|
| (Fiscal 2021) |
|
| (Fiscal 2020) |
|
| (Fiscal 2021) |
|
| (Fiscal 2020) |
|
| (Fiscal 2022) |
|
| (Fiscal 2021) |
|
| (Fiscal 2022) |
|
| (Fiscal 2021) |
| ||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Sales |
| $ | 121,486 |
|
| $ | 85,171 |
|
| $ | 371,570 |
|
| $ | 218,840 |
|
| $ | 129,671 |
|
| $ | 121,486 |
|
| $ | 401,960 |
|
| $ | 371,570 |
|
Cost of goods sold including occupancy costs |
|
| 60,529 |
|
|
| 54,099 |
|
|
| 188,178 |
|
|
| 153,057 |
|
|
| 64,856 |
|
|
| 60,529 |
|
|
| 197,960 |
|
|
| 188,178 |
|
Gross profit |
| 60,957 |
|
|
| 31,072 |
|
|
| 183,392 |
|
|
| 65,783 |
|
|
| 64,815 |
|
|
| 60,957 |
|
|
| 204,000 |
|
|
| 183,392 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Selling, general and administrative |
| 41,962 |
|
|
| 32,820 |
|
|
| 120,856 |
|
|
| 90,727 |
|
|
| 48,383 |
|
|
| 41,962 |
|
|
| 144,441 |
|
|
| 120,856 |
| |
Impairment of assets |
| (1,086 | ) |
|
| (1,135 | ) |
|
| (2,103 | ) |
|
| 15,200 |
| |||||||||||||||||
Impairment (gain) of assets |
|
| - |
|
|
| (1,086 | ) |
|
| (398 | ) |
|
| (2,103 | ) | ||||||||||||||||
Depreciation and amortization |
|
| 4,142 |
|
|
| 5,302 |
|
|
| 13,031 |
|
|
| 16,374 |
|
|
| 3,769 |
|
|
| 4,142 |
|
|
| 11,748 |
|
|
| 13,031 |
|
Total expenses |
|
| 45,018 |
|
|
| 36,987 |
|
|
| 131,784 |
|
|
| 122,301 |
|
|
| 52,152 |
|
|
| 45,018 |
|
|
| 155,791 |
|
|
| 131,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Operating income (loss) |
| 15,939 |
|
|
| (5,915 | ) |
|
| 51,608 |
|
|
| (56,518 | ) | |||||||||||||||||
Operating income |
|
| 12,663 |
|
|
| 15,939 |
|
|
| 48,209 |
|
|
| 51,608 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Interest expense, net |
|
| (2,189 | ) |
|
| (1,080 | ) |
|
| (4,256 | ) |
|
| (2,873 | ) |
|
| (107 | ) |
|
| (2,189 | ) |
|
| (350 | ) |
|
| (4,256 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Income (loss) before provision for income taxes |
| 13,750 |
|
|
| (6,995 | ) |
|
| 47,352 |
|
|
| (59,391 | ) | |||||||||||||||||
Provision for income taxes |
|
| 94 |
|
|
| 27 |
|
|
| 548 |
|
|
| 71 |
| ||||||||||||||||
Income before provision (benefit) for income taxes |
|
| 12,556 |
|
|
| 13,750 |
|
|
| 47,859 |
|
|
| 47,352 |
| ||||||||||||||||
Provision (benefit) for income taxes |
|
| 2,083 |
|
|
| 94 |
|
|
| (32,944 | ) |
|
| 548 |
| ||||||||||||||||
|
|
|
|
|
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| ||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Net income (loss) |
| $ | 13,656 |
|
| $ | (7,022 | ) |
| $ | 46,804 |
|
| $ | (59,462 | ) | ||||||||||||||||
Net income |
| $ | 10,473 |
|
| $ | 13,656 |
|
| $ | 80,803 |
|
| $ | 46,804 |
| ||||||||||||||||
|
|
|
|
|
|
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|
|
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| ||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net income (loss) per share - basic |
| $ | 0.21 |
|
| $ | (0.14 | ) |
| $ | 0.74 |
|
| $ | (1.16 | ) | ||||||||||||||||
Net income (loss) per share - diluted |
| $ | 0.20 |
|
| $ | (0.14 | ) |
| $ | 0.69 |
|
| $ | (1.16 | ) | ||||||||||||||||
Net income per share - basic |
| $ | 0.17 |
|
| $ | 0.21 |
|
| $ | 1.28 |
|
| $ | 0.74 |
| ||||||||||||||||
Net income per share - diluted |
| $ | 0.16 |
|
| $ | 0.20 |
|
| $ | 1.20 |
|
| $ | 0.69 |
| ||||||||||||||||
|
|
|
|
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|
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| ||||||||
Weighted-average number of common shares outstanding: |
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| ||||||||
Basic |
| 63,699 |
|
|
| 51,545 |
| 63,126 |
| 51,127 |
|
|
| 62,016 |
|
|
| 63,699 |
|
|
| 62,928 |
|
|
| 63,126 |
| |||||
Diluted |
| 68,644 |
|
|
| 51,545 |
| 67,378 |
| 51,127 |
|
|
| 66,229 |
|
|
| 68,644 |
|
|
| 67,106 |
|
|
| 67,378 |
|
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 |
|
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
|
| ||||||||||||||||||||
|
| October 30, 2021 |
|
| October 31, 2020 |
|
| October 30, 2021 |
|
| October 31, 2020 |
|
|
| October 29, 2022 |
|
| October 30, 2021 |
|
| October 29, 2022 |
|
| October 30, 2021 |
|
| ||||||||
|
| (Fiscal 2021) |
|
| (Fiscal 2020) |
|
| (Fiscal 2021) |
|
| (Fiscal 2020) |
|
|
| (Fiscal 2022) |
|
| (Fiscal 2021) |
|
| (Fiscal 2022) |
|
| (Fiscal 2021) |
|
| ||||||||
Net income (loss) |
| $ | 13,656 |
|
| $ | (7,022 | ) |
| $ | 46,804 |
|
| $ | (59,462 | ) |
| |||||||||||||||||
Net income |
| $ | 10,473 |
|
| $ | 13,656 |
|
| $ | 80,803 |
|
| $ | 46,804 |
|
| |||||||||||||||||
|
|
|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
| ||||||||
Other comprehensive income before taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Foreign currency translation |
|
| 2 |
|
|
| - |
|
|
| (40 | ) |
|
| (39 | ) |
|
|
| (3 | ) |
|
| 2 |
|
|
| (10 | ) |
|
| (40 | ) |
|
Pension plans |
|
| 77 |
|
|
| 247 |
|
|
| 233 |
|
|
| 742 |
|
|
|
| 68 |
|
|
| 77 |
|
|
| 203 |
|
|
| 233 |
|
|
Other comprehensive income before taxes |
|
| 79 |
|
|
| 247 |
|
|
| 193 |
|
|
| 703 |
|
|
|
| 65 |
|
|
| 79 |
|
|
| 193 |
|
|
| 193 |
|
|
Tax provision related to items of other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
Other comprehensive income, net of tax |
|
| 79 |
|
|
| 247 |
|
|
| 193 |
|
|
| 703 |
|
|
|
| 65 |
|
|
| 79 |
|
|
| 193 |
|
|
| 193 |
|
|
Comprehensive income (loss) |
| $ | 13,735 |
|
| $ | (6,775 | ) |
| $ | 46,997 |
|
| $ | (58,759 | ) |
| |||||||||||||||||
Comprehensive income |
| $ | 10,538 |
|
| $ | 13,735 |
|
| $ | 80,996 |
|
| $ | 46,997 |
|
|
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)
|
|
|
|
|
|
|
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|
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| ||||||||
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|
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|
|
|
|
| Accumulated |
|
|
|
| ||||||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
| ||||||||
|
| Common Stock |
|
| Paid-in |
|
| Treasury Stock |
|
| Accumulated |
|
| Comprehensive |
|
|
|
| ||||||||||||||
|
| Shares |
|
| Amounts |
|
| Capital |
|
| Shares |
|
| Amounts |
|
| Deficit |
|
| Loss |
|
| Total |
| ||||||||
Balance at January 29, 2022 |
|
| 77,025 |
|
| $ | 770 |
|
| $ | 319,511 |
|
|
| (12,755 | ) |
| $ | (92,658 | ) |
| $ | (163,879 | ) |
| $ | (5,525 | ) |
| $ | 58,219 |
|
Board of directors compensation |
|
| 29 |
|
|
| — |
|
|
| 125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 125 |
| ||||
Stock compensation expense |
|
|
|
|
|
|
|
| 366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 366 |
| ||||||
Restricted stock units (RSUs) granted for achievement of performance-based |
|
|
|
|
|
|
|
| 1,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,138 |
| ||||||
Issuance of common stock, upon RSUs release |
|
| 313 |
|
|
| 3 |
|
|
| (3 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| ||||
Shares withheld for taxes related to net share settlement |
|
| (85 | ) |
|
| (1 | ) |
|
| (414 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (415 | ) | ||||
Exercise of stock options |
|
| 41 |
|
|
| 1 |
|
|
| 22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 23 |
| ||||
Repurchase of common stock |
|
|
|
|
|
|
|
|
|
|
| (946 | ) |
|
| (4,847 | ) |
|
|
|
|
|
|
|
| (4,847 | ) | |||||
Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Pension plan, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 67 |
|
|
| 67 |
| ||||||
Foreign currency, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (4 | ) |
|
| (4 | ) | ||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 13,388 |
|
|
|
|
|
| 13,388 |
| ||||||
Balance at April 30, 2022 |
|
| 77,323 |
|
| $ | 773 |
|
| $ | 320,745 |
|
|
| (13,702 | ) |
| $ | (97,505 | ) |
| $ | (150,491 | ) |
| $ | (5,462 | ) |
| $ | 68,060 |
|
Board of directors compensation |
|
| 25 |
|
|
| 1 |
|
|
| 125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 126 |
| ||||
Stock compensation expense |
|
|
|
|
|
|
|
| 386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 386 |
| ||||||
Issuance of common stock, upon RSUs release |
|
| 5 |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| ||||
Shares withheld for taxes related to net share settlement |
|
| — |
|
|
| — |
|
|
| (6 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (6 | ) | ||||
Exercise of stock options |
|
| 7 |
|
|
| — |
|
|
| 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3 |
| ||||
Repurchase of common stock |
|
|
|
|
|
|
|
|
|
|
| (1,923 | ) |
|
| (7,881 | ) |
|
|
|
|
|
|
|
| (7,881 | ) | |||||
Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Pension plan, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 68 |
|
|
| 68 |
| ||||||
Foreign currency, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (3 | ) |
|
| (3 | ) | ||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 56,942 |
|
|
|
|
|
| 56,942 |
| ||||||
Balance at July 30, 2022 |
|
| 77,360 |
|
| $ | 774 |
|
| $ | 321,253 |
|
|
| (15,625 | ) |
| $ | (105,386 | ) |
| $ | (93,549 | ) |
| $ | (5,397 | ) |
| $ | 117,695 |
|
Board of directors compensation |
|
| 31 |
|
|
| — |
|
|
| 124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 124 |
| ||||
Stock compensation expense |
|
|
|
|
|
|
|
| 301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 301 |
| ||||||
Issuance of common stock, upon RSUs release |
|
| 266 |
|
|
| 3 |
|
|
| (3 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| ||||
Exercise of stock options |
|
| 705 |
|
|
| 7 |
|
|
| 203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 210 |
| ||||
Shares withheld for taxes related to net share settlement |
|
| (305 | ) |
|
| (3 | ) |
|
| (1,421 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,424 | ) | ||||
Accumulated other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| |||||||
Pension plan, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 68 |
|
|
| 68 |
| ||||||
Foreign currency, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (3 | ) |
|
| (3 | ) | ||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 10,473 |
|
|
|
|
|
| 10,473 |
| ||||||
Balance at October 29, 2022 |
|
| 78,057 |
|
| $ | 781 |
|
| $ | 320,457 |
|
|
| (15,625 | ) |
| $ | (105,386 | ) |
| $ | (83,076 | ) |
| $ | (5,332 | ) |
| $ | 127,444 |
|
The accompanying notes are an integral part of the consolidated financial statements.
5
DESTINATION XL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(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, 2021 |
|
| 64,656 |
|
| $ | 647 |
|
| $ | 314,747 |
|
|
| (12,755 | ) |
| $ | (92,658 | ) |
| $ | (220,592 | ) |
| $ | (6,221 | ) |
| $ | (4,077 | ) |
Issuance of common stock through private direct offering, net of offering costs |
|
| 11,111 |
|
|
| 111 |
|
|
| 4,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,375 |
| ||||
Board of directors compensation |
|
| 137 |
|
|
| 1 |
|
|
| 108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 109 |
| ||||
Stock compensation expense |
|
|
|
|
|
|
|
| 327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 327 |
| ||||||
Issuance of common stock, upon RSUs release |
|
| 308 |
|
|
| 3 |
|
|
| (3 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| ||||
Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Pension plan, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 78 |
|
|
| 78 |
| ||||||
Foreign currency, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (25 | ) |
|
| (25 | ) | ||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 8,697 |
|
|
|
|
|
| 8,697 |
| ||||||
Balance at May 1, 2021 |
|
| 76,212 |
|
| $ | 762 |
|
| $ | 319,443 |
|
|
| (12,755 | ) |
| $ | (92,658 | ) |
| $ | (211,895 | ) |
| $ | (6,168 | ) |
| $ | 9,484 |
|
Board of directors compensation |
|
| 70 |
|
|
| 1 |
|
|
| 109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 110 |
| ||||
Stock compensation expense |
|
|
|
|
|
|
|
| 316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 316 |
| ||||||
Exercise of stock options |
|
| 7 |
|
|
| — |
|
|
| 4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4 |
| ||||
Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Pension plan, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 78 |
|
|
| 78 |
| ||||||
Foreign currency, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (17 | ) |
|
| (17 | ) | ||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 24,451 |
|
|
|
|
|
| 24,451 |
| ||||||
Balance at July 31, 2021 |
|
| 76,289 |
|
| $ | 763 |
|
| $ | 319,872 |
|
|
| (12,755 | ) |
| $ | (92,658 | ) |
| $ | (187,444 | ) |
| $ | (6,107 | ) |
| $ | 34,426 |
|
Board of directors compensation |
|
| 15 |
|
|
| — |
|
|
| 77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 77 |
| ||||
Stock compensation expense |
|
|
|
|
|
|
|
| 295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 295 |
| ||||||
Issuance of common stock, upon PSUs release |
|
| 240 |
|
|
| 3 |
|
|
| (3 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| ||||
Exercise of stock options |
|
| 423 |
|
|
| 4 |
|
|
| 342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 346 |
| ||||
Shares withheld for taxes related to net share settlements |
|
| (190 | ) |
|
| (2 | ) |
|
| (1,144 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,146 | ) | ||||
Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| |||||||
Pension plan, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 77 |
|
|
| 77 |
| ||||||
Foreign currency, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2 |
|
|
| 2 |
| ||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 13,656 |
|
|
|
|
|
| 13,656 |
| ||||||
Balance at October 30, 2021 |
|
| 76,777 |
|
| $ | 768 |
|
| $ | 319,439 |
|
|
| (12,755 | ) |
| $ | (92,658 | ) |
| $ | (173,788 | ) |
| $ | (6,028 | ) |
| $ | 47,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| ||||||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
| ||||||||
|
| Common Stock |
|
| Paid-in |
|
| Treasury Stock |
|
| Accumulated |
|
| Comprehensive |
|
|
|
| ||||||||||||||
|
| Shares |
|
| Amounts |
|
| Capital |
|
| Shares |
|
| Amounts |
|
| Deficit |
|
| Loss |
|
| Total |
| ||||||||
Balance at January 30, 2021 |
|
| 64,656 |
|
| $ | 647 |
|
| $ | 314,747 |
|
|
| (12,755 | ) |
| $ | (92,658 | ) |
| $ | (220,592 | ) |
| $ | (6,221 | ) |
| $ | (4,077 | ) |
Issuance of common stock through private direct offering, net of offering costs |
|
| 11,111 |
|
|
| 111 |
|
|
| 4,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,375 |
| ||||
Board of directors compensation |
|
| 137 |
|
|
| 1 |
|
|
| 108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 109 |
| ||||
Stock compensation expense |
|
|
|
|
|
|
|
| 327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 327 |
| ||||||
Issuance of common stock, upon RSUs release |
|
| 308 |
|
|
| 3 |
|
|
| (3 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| ||||
Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Pension plan, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 78 |
|
|
| 78 |
| ||||||
Foreign currency, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (25 | ) |
|
| (25 | ) | ||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 8,697 |
|
|
|
|
|
| 8,697 |
| ||||||
Balance at May 1, 2021 |
|
| 76,212 |
|
| $ | 762 |
|
| $ | 319,443 |
|
|
| (12,755 | ) |
| $ | (92,658 | ) |
| $ | (211,895 | ) |
| $ | (6,168 | ) |
| $ | 9,484 |
|
Board of directors compensation |
|
| 70 |
|
|
| 1 |
|
|
| 109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 110 |
| ||||
Stock compensation expense |
|
|
|
|
|
|
|
| 316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 316 |
| ||||||
Exercise of stock options |
|
| 7 |
|
|
| — |
|
|
| 4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4 |
| ||||
Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Pension plan, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 78 |
|
|
| 78 |
| ||||||
Foreign currency, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (17 | ) |
|
| (17 | ) | ||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 24,451 |
|
|
|
|
|
| 24,451 |
| ||||||
Balance at July 31, 2021 |
|
| 76,289 |
|
| $ | 763 |
|
| $ | 319,872 |
|
|
| (12,755 | ) |
| $ | (92,658 | ) |
| $ | (187,444 | ) |
| $ | (6,107 | ) |
| $ | 34,426 |
|
Board of directors compensation |
|
| 15 |
|
|
| — |
|
|
| 77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 77 |
| ||||
Stock compensation expense |
|
|
|
|
|
|
|
| 295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 295 |
| ||||||
Issuance of common stock, upon PSUs release |
|
| 240 |
|
|
| 3 |
|
|
| (3 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| ||||
Exercise of stock options |
|
| 423 |
|
|
| 4 |
|
|
| 342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 346 |
| ||||
Shares withheld for taxes related to net share settlements |
|
| (190 | ) |
|
| (2 | ) |
|
| (1,144 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,146 | ) | ||||
Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| |||||||
Pension plan, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 77 |
|
|
| 77 |
| ||||||
Foreign currency, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2 |
|
|
| 2 |
| ||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 13,656 |
|
|
|
|
|
| 13,656 |
| ||||||
Balance at October 30, 2021 |
|
| 76,777 |
|
| $ | 768 |
|
| $ | 319,439 |
|
|
| (12,755 | ) |
| $ | (92,658 | ) |
| $ | (173,788 | ) |
| $ | (6,028 | ) |
| $ | 47,733 |
|
The accompanying notes are an integral part of the consolidated financial statements.
5
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 February 1, 2020 |
|
| 63,297 |
|
| $ | 633 |
|
| $ | 312,933 |
|
|
| (12,755 | ) |
| $ | (92,658 | ) |
| $ | (156,054 | ) |
| $ | (6,431 | ) |
| $ | 58,423 |
|
Board of directors compensation |
|
| 93 |
|
|
| 1 |
|
|
| 148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 149 |
| ||||
Stock compensation expense |
|
|
|
|
|
|
|
| 452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 452 |
| ||||||
Issuance of common stock, upon RSUs release |
|
| 437 |
|
|
| 4 |
|
|
| (4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| ||||
Deferred stock vested |
|
| 6 |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| ||||
Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Pension plan, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 242 |
|
|
| 242 |
| ||||||
Foreign currency, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (34 | ) |
|
| (34 | ) | ||||||
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (41,726 | ) |
|
|
|
|
| (41,726 | ) | ||||||
Balance at May 2, 2020 |
|
| 63,833 |
|
| $ | 638 |
|
| $ | 313,529 |
|
|
| (12,755 | ) |
| $ | (92,658 | ) |
| $ | (197,780 | ) |
| $ | (6,223 | ) |
| $ | 17,506 |
|
Stock compensation expense |
|
|
|
|
|
|
|
| 345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 345 |
| ||||||
Deferred stock vested |
|
| 8 |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| ||||
Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Pension plan, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 253 |
|
|
| 253 |
| ||||||
Foreign currency, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (5 | ) |
|
| (5 | ) | ||||||
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (10,714 | ) |
|
|
|
|
| (10,714 | ) | ||||||
Balance at August 1, 2020 |
|
| 63,841 |
|
| $ | 638 |
|
| $ | 313,874 |
|
|
| (12,755 | ) |
| $ | (92,658 | ) |
| $ | (208,494 | ) |
| $ | (5,975 | ) |
| $ | 7,385 |
|
Board of directors compensation |
|
| 252 |
|
|
| 3 |
|
|
| 117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 120 |
| ||||
Stock compensation expense |
|
|
|
|
|
|
|
| 326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 326 |
| ||||||
Issuance of common stock, upon RSUs release |
|
| 131 |
|
|
| 1 |
|
|
| (1 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| ||||
Deferred stock vested |
|
| 100 |
|
|
| 1 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1 |
| ||||
Accumulated other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Pension plan, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 247 |
|
|
| 247 |
| ||||||
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (7,022 | ) |
|
|
|
|
| (7,022 | ) | ||||||
Balance at October 31, 2020 |
|
| 64,324 |
|
| $ | 643 |
|
| $ | 314,316 |
|
|
| (12,755 | ) |
| $ | (92,658 | ) |
| $ | (215,516 | ) |
| $ | (5,728 | ) |
| $ | 1,057 |
|
The accompanying notes are an integral part of the consolidated financial statements.
6
DESTINATION XL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
| For the Nine Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| October 30, 2021 |
|
| October 31, 2020 |
|
| October 29, 2022 |
|
| October 30, 2021 |
| ||||
|
| (Fiscal 2021) |
|
| (Fiscal 2020) |
|
| (Fiscal 2022) |
|
| (Fiscal 2021) |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) |
| $ | 46,804 |
| $ | (59,462 | ) | |||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: |
|
|
|
|
|
| ||||||||||
Net income |
| $ | 80,803 |
|
| $ | 46,804 |
| ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
| ||||||||||
Amortization and write-off of deferred debt issuance costs |
| 1,161 |
| 108 |
|
|
| 57 |
|
|
| 1,161 |
| |||
Impairment of assets |
| (2,103 | ) |
| 15,200 |
| ||||||||||
Impairment (gain) of assets |
|
| (398 | ) |
|
| (2,103 | ) | ||||||||
Depreciation and amortization |
| 13,031 |
| 16,374 |
|
|
| 11,748 |
|
|
| 13,031 |
| |||
Deferred taxes, net of valuation allowance |
|
| (33,480 | ) |
|
| — |
| ||||||||
Stock compensation expense |
|
| 938 |
| 1,123 |
|
|
| 1,053 |
|
|
| 938 |
| ||
Board of directors stock compensation |
| 296 |
| 269 |
|
|
| 375 |
|
|
| 296 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts receivable |
| 4,812 |
| 997 |
|
|
| 1,094 |
|
|
| 4,812 |
| |||
Inventories |
| 2,744 |
| 7,522 |
|
|
| (25,052 | ) |
|
| 2,744 |
| |||
Prepaid expenses and other current assets |
| (3,237 | ) |
| 5,348 |
|
|
| (1,892 | ) |
|
| (3,237 | ) | ||
Other assets |
| 360 |
| 675 |
|
|
| (61 | ) |
|
| 360 |
| |||
Accounts payable |
| 2,674 |
| (3,183 | ) |
|
| 1,399 |
|
|
| 2,674 |
| |||
Operating leases, net |
| (12,275 | ) |
| 763 |
|
|
| (5,590 | ) |
|
| (12,275 | ) | ||
Accrued expenses and other liabilities |
|
| 8,945 |
|
| 5,631 |
|
|
| 113 |
|
|
| 8,945 |
| |
Net cash provided by (used for) operating activities |
|
| 64,150 |
|
| (8,635 | ) | |||||||||
Net cash provided by operating activities |
|
| 30,169 |
|
|
| 64,150 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Additions to property and equipment, net |
|
| (2,802 | ) |
|
| (2,938 | ) |
|
| (7,853 | ) |
|
| (2,802 | ) |
Net cash used for investing activities |
|
| (2,802 | ) |
|
| (2,938 | ) |
|
| (7,853 | ) |
|
| (2,802 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Repurchase of common stock |
|
| (12,728 | ) |
|
| — |
| ||||||||
Proceeds from issuance of common stock from private direct offering, net of offering costs |
| 4,375 |
| — |
|
|
| — |
|
|
| 4,375 |
| |||
Repayment of FILO loans |
| (32,500 | ) |
| — |
| ||||||||||
Repayment of FILO loan |
|
| — |
|
|
| (32,500 | ) | ||||||||
Proceeds from new FILO loan |
| 17,500 |
| — |
|
|
| — |
|
|
| 17,500 |
| |||
Net borrowings (repayments) under credit facility |
| (59,733 | ) |
| 28,677 |
| ||||||||||
Net repayments under credit facility |
|
| — |
|
|
| (59,733 | ) | ||||||||
Debt extinguishment costs |
| (1,111 | ) |
| — |
|
|
| — |
|
|
| (1,111 | ) | ||
Debt issuance costs |
| (1,143 | ) |
| (25 | ) |
|
| — |
|
|
| (1,143 | ) | ||
Tax withholdings paid related to net share settlements |
| (1,146 | ) |
| — |
|
|
| (1,845 | ) |
|
| (1,146 | ) | ||
Proceeds from the exercise of stock options |
|
| 350 |
|
| — |
|
|
| 236 |
|
|
| 350 |
| |
Net cash provided by (used for) financing activities |
|
| (73,408 | ) |
|
| 28,652 |
| ||||||||
Net cash used for financing activities |
|
| (14,337 | ) |
|
| (73,408 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents |
| (12,060 | ) |
| 17,079 |
|
|
| 7,979 |
|
|
| (12,060 | ) | ||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Beginning of period |
|
| 18,997 |
|
| 4,338 |
|
|
| 15,506 |
|
|
| 18,997 |
| |
End of period |
| $ | 6,937 |
| $ | 21,417 |
|
| $ | 23,485 |
|
| $ | 6,937 |
|
The accompanying notes are an integral part of the consolidated financial statements.
7
DESTINATION XL GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
In the opinion of management of Destination XL Group, Inc., a Delaware corporation (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, 202129, 2022 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 19, 2021.17, 2022.
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 20212022 and fiscal 20202021 are 52-week periods ending on January 29, 202228, 2023 and January 30, 2021,29, 2022, respectively.
COVID-19 Pandemic and its impact on results and comparability of financial statements
On March 11, 2020, the World Health Organization declared the current outbreak of a novel coronavirus disease (“COVID-19”) as a global pandemic. The COVID-19 pandemic had an adverse effect on the Company’s operations during fiscal 2020. All of the Company’s store locations were closed temporarily on March 17, 2020 and the majority of the Company’s workforce was furloughed in March 2020. The Company began reopening stores in late April and by the end of June 2020 all retail stores had been reopened, but the majority with reduced operating hours. As a result of the impact of the pandemic on our business in fiscal 2020, including the temporary closure of all of our stores in fiscal 2020, results for the third quarter and first nine months of fiscal 2021 may not be comparable to the results for the third quarter and first nine months of fiscal 2020.
While vaccines are being widely distributed and many areas where our stores are located currently have limited or no restrictions, the duration of the COVID-19 pandemic and its variants remain uncertain and could continue to have a material adverse impact on the Company’s results of operations, financial condition and cash flows.
Segment Information
The Company has 3two principal operating segments: its stores and its direct and wholesale businesses.business. The Company considers its stores and direct operating segments to be similar in terms of economic characteristics, production processes and operations, and has therefore aggregated them into 1one reportable segment, retail segment, consistent with its omni-channel business approach. The Company’s wholesale business was a third operating segment. In the first quarter of fiscal 2022, the Company ended its relationship with its primary wholesale customer. Due to the immateriality of the wholesale segment’s revenues, profits and assets, its operating results are aggregated with the retail segment for all periods presented.
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.
8
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 carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses and short-term borrowings approximate fair value because of the short maturity of these instruments.
8
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 (loss) and reclassifications from AOCI for the three and nine months ended October 30, 202129, 2022 and October 31, 2020,30, 2021, respectively, were as follows:
|
| October 30, 2021 |
|
| October 31, 2020 |
|
| October 29, 2022 |
|
| October 30, 2021 |
| ||||||||||||||||||||||||||||||||||||
For the three months ended: |
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Pension |
|
| Foreign |
|
| Total |
|
| Pension |
|
| Foreign |
|
| Total |
|
| Pension |
|
| Foreign |
|
| Total |
|
| Pension |
|
| Foreign |
|
| Total |
| ||||||||||||
Balance at beginning of the quarter |
| $ | (6,068 | ) |
| $ | (39 | ) |
| $ | (6,107 | ) |
| $ | (5,983 | ) |
| $ | 8 |
| $ | (5,975 | ) |
| $ | (5,331 | ) |
| $ | (66 | ) |
| $ | (5,397 | ) |
| $ | (6,068 | ) |
| $ | (39 | ) |
| $ | (6,107 | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Other comprehensive income (loss) before |
| 90 |
| 2 |
| 92 |
| 77 |
| — |
| 77 |
|
|
| 77 |
|
|
| (3 | ) |
|
| 74 |
|
|
| 90 |
|
|
| 2 |
|
|
| 92 |
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Amounts reclassified from accumulated other |
|
| (13 | ) |
|
| — |
|
| (13 | ) |
|
| 170 |
|
| — |
|
| 170 |
|
|
| (9 | ) |
|
| — |
|
|
| (9 | ) |
|
| (13 | ) |
|
| — |
|
|
| (13 | ) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Other comprehensive income (loss) for the period |
| 77 |
| 2 |
| 79 |
| 247 |
| — |
| 247 |
|
|
| 68 |
|
|
| (3 | ) |
|
| 65 |
|
|
| 77 |
|
|
| 2 |
|
|
| 79 |
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Balance at end of quarter |
| $ | (5,991 | ) |
| $ | (37 | ) |
| $ | (6,028 | ) |
| $ | (5,736 | ) |
| $ | 8 |
| $ | (5,728 | ) |
| $ | (5,263 | ) |
| $ | (69 | ) |
| $ | (5,332 | ) |
| $ | (5,991 | ) |
| $ | (37 | ) |
| $ | (6,028 | ) |
|
| October 30, 2021 |
|
| October 31, 2020 |
|
| October 29, 2022 |
|
| October 30, 2021 |
| ||||||||||||||||||||||||||||||||||||
For the nine months ended: |
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Pension |
|
| Foreign |
|
| Total |
|
| Pension |
|
| Foreign |
|
| Total |
|
| Pension |
|
| Foreign |
|
| Total |
|
| Pension |
|
| Foreign |
|
| Total |
| ||||||||||||
Balance at beginning of fiscal year |
| $ | (6,224 | ) |
| $ | 3 |
| $ | (6,221 | ) |
| $ | (6,478 | ) |
| $ | 47 |
| $ | (6,431 | ) |
| $ | (5,466 | ) |
| $ | (59 | ) |
| $ | (5,525 | ) |
| $ | (6,224 | ) |
| $ | 3 |
|
| $ | (6,221 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Other comprehensive income (loss) before |
| 270 |
| (40 | ) |
| 230 |
| 231 |
| (39 | ) |
| 192 |
|
|
| 232 |
|
|
| (10 | ) |
|
| 222 |
|
|
| 270 |
|
|
| (40 | ) |
|
| 230 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Amounts reclassified from accumulated other |
|
| (37 | ) |
|
| — |
|
| (37 | ) |
|
| 511 |
|
| — |
|
| 511 |
|
|
| (29 | ) |
|
| — |
|
|
| (29 | ) |
|
| (37 | ) |
|
| — |
|
|
| (37 | ) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Other comprehensive income (loss) for the period |
| 233 |
| (40 | ) |
| 193 |
| 742 |
| (39 | ) |
| 703 |
|
|
| 203 |
|
|
| (10 | ) |
|
| 193 |
|
|
| 233 |
|
|
| (40 | ) |
|
| 193 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Balance at end of quarter |
| $ | (5,991 | ) |
| $ | (37 | ) |
| $ | (6,028 | ) |
| $ | (5,736 | ) |
| $ | 8 |
| $ | (5,728 | ) |
| $ | (5,263 | ) |
| $ | (69 | ) |
| $ | (5,332 | ) |
| $ | (5,991 | ) |
| $ | (37 | ) |
| $ | (6,028 | ) |
Stock-based Compensation
All share-based payments, including grants of employee stock options and restricted stock, are recognized as an expense in the Consolidated Statements of Operations based on their fair values and vesting periods. The fair value of stock options is determined using the Black-Scholes valuation model and requires the input of subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (the “expected term”), the estimated volatility of the Company’s common stock price over the expected term and the number of options that will ultimately not complete their vesting
9
requirements (“forfeitures”). The Company reviews its valuation assumptions at each grant date and, as a result, is likely to change its valuation assumptions used to value employee stock-based awards granted in future periods. The values derived from using the Black-Scholes model are recognized as an expense over the vesting period, net of estimated forfeitures. The estimation of stock-based awards
9
that will ultimately vest requires judgment. Actual results and future changes in estimates may differ from the Company’s current estimates.
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model based on the assumptions in the table below as it relates to stock options granted during the first nine months of fiscal 20212022 and fiscal 2020.2021.
|
| October 30, 2021 |
|
| October 31, 2020 |
| ||
Expected volatility |
| 97.4% - 104.9% |
|
| 82.3% - 87.8% |
| ||
Risk-free interest rate |
| 0.31% - 0.60% |
|
| 0.22% - 0.27% |
| ||
Expected life |
| 3.0 - 4.0 yrs. |
|
| 3.0 - 4.0 yrs. |
| ||
Dividend rate |
|
| — |
|
|
| — |
|
Weighted average fair value of options granted |
| $0.47 |
|
| $0.32 |
|
|
| October 29, 2022 |
|
| October 30, 2021 |
| ||
Expected volatility |
| 87.9%-123.7% |
|
| 97.4% - 104.9% |
| ||
Risk-free interest rate |
| 2.52%-4.41% |
|
| 0.31% - 0.60% |
| ||
Expected term |
| 2.0-3.5 yrs. |
|
| 3.0 - 4.0 yrs. |
| ||
Dividend rate |
|
| — |
|
|
| — |
|
Weighted average fair value of options granted |
| $ | 3.46 |
|
| $ | 0.47 |
|
The Company has outstanding performance stock units (PSUs) with a market condition. The respective grant-date fair value and derived service periods assigned to the PSUs were determined using a Monte Carlo model. The valuation included assumptions with respect to the Company’s historical volatility, risk-free rate and cost of equity. equity and the related stock compensation expense was fully expensed by the end of fiscal 2021.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for events or changes in circumstances that might indicate the carrying amount of the assets may not be recoverable. The Company’s judgment regarding the identification of impairment indicators is based on operational performance at the store level. Factors considered by the Company that could result in an impairment triggering event include significant changes in the use of assets, a current period operating or cash flow loss, underperformance of a store relative to historical or expected operating results, and an accumulation of costs significantly in excess of the amount originally expected for the construction of the long-lived store assets. The Company assesses the recoverability of the assets by determining whether the carrying value of such assets over their respective remaining lives can be recovered through projected undiscounted future cash flows. The model for undiscounted future cash flows includes assumptions, at the individual store level, with respect to expectations for future sales and gross margin rates as well as an estimate for occupancy costs used to estimate the fair value of the respective store’s operating lease right-of-use asset. The amount of impairment, if any, is measured based on projected discounted future cash flows using a discount rate reflecting the Company’s average cost of funds.
There were no impairments or non-cash gains recognized in the third quarter of fiscal 2022. For the third quarter of fiscal 2021, the Company recognized a non-cash gain of $1.2 million, and for the first nine months of fiscal 2022 and fiscal 2021, the Company recognized non-cash gains of $1.20.6 million and $2.3 million, respectively. These non-cash gains related to the Company’s decision to close certain retail stores, which resulted in a revaluation of the existing lease liabilities. The portion of the gains that related to previously recorded impairment charges against the operating lease right-of-use asset were included as an offset to previously recorded asset impairment charges. Accordingly, for the third quarter andof fiscal 2021, $1.1 million was included as an offset to asset impairment charges. For the first nine months of fiscal 2022 and fiscal 2021, $1.10.4 million and $2.1 million, respectively, were included as an offset to asset impairment charges, respectively.charges. The remaining $0.1 million and $0.2 million of the gains for the third quarter of fiscal 2021 and the first nine months of fiscal 2022 and fiscal 2021 respectively, waswere included as a reduction of store occupancy costs.
For the third quarter of fiscal 2020, the Company recognized a non-cash gain of $1.2 million related to the closure of certain stores, which had previously been impaired. Accordingly, $1.1 million of the $1.2 million, related to previously recorded impairment charges was included as an offset to asset impairment charges, with the remaining $0.1 million included as a reduction of store occupancy costs. The results for the first nine months of fiscal 2020, include an impairment charge of $16.3 million, recorded in the first quarter of fiscal 2020 as a result of the significant impact that the COVID-19 pandemic was having on the Company’s business and the continued uncertainty at that time. The impairment charge included approximately $12.5 million for the write-down of certain right-of-use assets and $3.8 million for the write-down of property and equipment, related to stores where the carrying value exceeded fair value.
Leases
The Company adopted ASU 2016-02, “Leases (Topic 842)” in fiscal 2019. Under ASC 842, the Company determines if an arrangement contains a lease at the inception of a contract. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use (“ROU”) assets and lease liabilities are recognized at the commencement date based on the present value of the remaining future minimum lease payments, initial direct costs and any lease incentives are included in the value of those right-of use assets. As the interest rate implicit in the Company’s leases is not readily determinable, the Company utilizes its incremental borrowing rate, based on information available at the lease measurement date, to determine the present value of future payments. The Company elected the lessee non-lease component separation practical expedient, which permits the Company to not separate non-lease components from the lease components to which they relate. The Company also made an accounting policy election that the recognition requirement of ASC 842 will not be applied to certain, if any, non-store leases, with a term of 12 months or less, recognizing those lease payments on a straight-line basis over the lease term. At October 30, 2021,29, 2022, the Company had 0no short-term leases.
The Company’s store leases typically contain options that permit renewals for additional periods of up to five years each. In general, for store leases with an initial term of 10 years or more, the options to extend are not considered reasonably certain at lease commencement. For stores leases with an initial term of 5 years, the Company evaluates each lease independently and, only when the Company considers
10
it reasonably certain that it will exercise an option to extend, will the associated payment of that option will be included in the measurement of the right-of-use asset and lease liability. Renewal options are not included in the lease term for automobile and equipment leases because they are not considered reasonably certain of being exercised at lease commencement. Renewal options were not considered
10
for the Company’s corporate headquarters and distribution center lease, which was entered into in 2006 and was for an initial 20-year term. At the end of the initial term, the Company will have the opportunity to extend this lease for 6six additional successive periods of five years.
For store leases, the Company accounts for lease components and non-lease components as a single lease component. Certain store leases may require additional payments based on sales volume, as well as reimbursement for real estate taxes, common area maintenance and insurance, and are expensed as incurred as variable lease costs. Other store leases contain one periodic fixed lease payment that includes real estate taxes, common area maintenance and insurance. These fixed payments are considered part of the lease payment and included in the right-of-use assets and lease liabilities. Tenant allowances are included as an offset to the right-of-use asset and amortized as reductions to rent expense over the associated lease term.
See Note 4 ‘‘Leases’’ for additional information.
Recently Issued Accounting Pronouncements -Not Yet Adopted
In September 2022, the FASB issued Accounting Standards Update ("ASU") 2022-04, Liabilities – Supplier Finance Programs, which is intended to enhance the transparency surrounding the use of supplier finance programs in connection with the purchase of goods and services. The guidance requires companies that use supplier finance programs to make annual disclosures about the program’s key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period and associated rollforward information. The new standard does not affect the recognition, measurement, or financial statement presentation of supplier finance program obligations. ASU 2022-04 is effective as of the Company's first quarter of fiscal 2023, with the exception of the rollforward information, which is effective for fiscal 2024. The Company does not plan to elect early adoption of this update and does not expect this pronouncement to materially affect its Consolidated Financial Statements.
No other new accounting pronouncements, issued or effective during the first nine months of fiscal 2021,2022, have had or are expected to have a significant impact on the Company’s Consolidated Financial Statements.
2. Revenue Recognition
The Company operates as a retailer of big and tall men’s clothing, which includes stores, direct and wholesale. Revenue is recognized by the operating segment that initiates a customer’s order. Store sales are defined as sales that originate and are fulfilled directly at the store level. Direct sales are defined as sales that originate online, including those initiated online at the store level, on its website or on third-party marketplaces. Wholesale sales are defined as sales made to wholesale customers pursuant to the terms of each customer’s contract with the Company. Generally, all revenues are recognized when control of the promised goods is transferred to customers, in an amount that reflects the consideration in exchange for those goods. Sales tax collected from customers and remitted to taxing authorities is excluded from revenue and is included as part of accrued expenses on the Consolidated Balance Sheets.
Unredeemed Gift Cards, Gift Certificates, and Credit Vouchers. Upon issuance of a gift card, gift certificate, or credit voucher, a liability is established for its cash value. The liability is relieved and net sales are recorded upon redemption by the customer. Based on historical redemption patterns, the Company can reasonably estimate the amount of gift cards, gift certificates, and credit vouchers for which redemption is remote, which is referred to as “breakage”. Breakage is recognized over two years in proportion to historical redemption trends and is recorded as sales in the Consolidated Statements of Operations. The gift card liability, net of breakage, was $1.12.1 million and $2.83.3 million at October 30, 202129, 2022 and January 30, 2021,29, 2022, respectively.
Unredeemed Loyalty Coupons. The Company offers a free loyalty program to its customers for which points accumulate based on the purchase of merchandise. Approximately 90% of the Company’s customers participate in the loyalty program. Under ASC 606, Revenue from Contracts with Customers, these loyalty points provide the customer with a material right and a distinct performance obligation with revenue deferred and recognized when the points are expected to redeem or expire. The cycle of earning and redeeming loyalty points is generally under one year in duration. The loyalty accrual, net of breakage, was $2.21.3 million and $1.01.3 million at October 30, 202129, 2022 and January 30, 2021,29, 2022, respectively.
Shipping. Shipping and handling costs are accounted for as fulfillment costs and are included in cost of sales for all periods presented. Amounts related to shipping and handling that are billed to customers are recorded in sales, and the related costs are recorded in cost of goods sold, including occupancy costs, in the Consolidated Statements of Operations.
11
Disaggregation of Revenue
As noted above under Segment Information in Note 1, the Company’s business consists of 1one reportable segment, its retail segment. Substantially all of the Company’s revenue is generated from its stores and direct businesses. The operating results from the wholesale segment, which were immaterial, have been aggregated with this reportable segment, but the revenues are separately reported below. Accordingly, the Company has determined that the following sales channels depict the nature, amount, timing, and uncertainty of how revenue and cash flows are affected by economic factors:
11
| For the Three Months Ended |
|
|
|
| For the Nine Months Ended |
|
|
| ||||||||||||||||
(in thousands) | October 29, 2022 |
|
|
| October 30, 2021 |
|
|
|
| October 29, 2022 |
|
|
| October 30, 2021 |
|
|
| ||||||||
Store sales | $ | 91,770 |
|
| 70.8 | % | $ | 84,762 |
|
| 70.3 | % |
| $ | 280,973 |
|
| 70.0 | % | $ | 258,685 |
|
| 70.5 | % |
Direct sales |
| 37,901 |
|
| 29.2 | % |
| 35,837 |
|
| 29.7 | % |
|
| 120,588 |
|
| 30.0 | % |
| 108,043 |
|
| 29.5 | % |
Retail segment | $ | 129,671 |
|
|
| $ | 120,599 |
|
|
|
| $ | 401,561 |
|
|
| $ | 366,728 |
|
|
| ||||
Wholesale segment |
| — |
|
|
|
| 887 |
|
|
|
|
| 399 |
|
|
|
| 4,842 |
|
|
| ||||
Total sales | $ | 129,671 |
|
|
| $ | 121,486 |
|
|
|
| $ | 401,960 |
|
|
| $ | 371,570 |
|
|
|
| For the three months ended |
|
|
|
| For the nine months ended |
|
|
| ||||||||||||||||
(in thousands) | October 30, 2021 |
|
|
| October 31, 2020 |
|
|
|
| October 30, 2021 |
|
|
| October 31, 2020 |
|
|
| ||||||||
Store sales | $ | 84,762 |
|
| 70.3 | % | $ | 53,363 |
|
| 66.6 | % |
| $ | 258,685 |
|
| 70.5 | % | $ | 124,155 |
|
| 60.0 | % |
Direct sales |
| 35,837 |
|
| 29.7 | % |
| 26,764 |
|
| 33.4 | % |
|
| 108,043 |
|
| 29.5 | % |
| 82,605 |
|
| 40.0 | % |
Retail segment | $ | 120,599 |
|
|
| $ | 80,127 |
|
|
|
| $ | 366,728 |
|
|
| $ | 206,760 |
|
|
| ||||
Wholesale segment |
| 887 |
|
|
|
| 5,044 |
|
|
|
|
| 4,842 |
|
|
|
| 12,080 |
|
|
| ||||
Total sales | $ | 121,486 |
|
|
| $ | 85,171 |
|
|
|
| $ | 371,570 |
|
|
| $ | 218,840 |
|
|
|
3. Debt
Credit Agreement with Citizens Bank, N.A.
On October 28, 2021, the Company entered into a new credit facility with Citizens Bank, N.A. (the “New Credit"Credit Facility”). The New Credit Facility replaced the Company's existing credit facility with Bank of America, N.A., which was due to expire on May 24, 2023 (the "Prior Credit Facility").
The New Credit Facility is a $125.0 million secured, asset-based credit facility with a maturity date of October 28, 2026. The maximum committed borrowing of $125.0 million includes a sublimit of $20.0 million for commercial and standby letter of credits and a sublimit of up to $15.0 million for swing line loans. The Company’s ability to borrow under the Credit Facility is determined using an availability formula based on eligible assets.
Borrowings made pursuant to the New Credit Facility will be made pursuant to either a Base Rate loan or LIBOR Rate loan, at the Company's option. Base Rate loans will bear interest at a rate equal to (i) the greater of: (a) the Prime Rate, (b) the Federal Funds effective rate plus 0.50% per annum and (c) the daily LIBOR rate plus 1.00% per annum, plus (ii) a varying percentage, based on the Company’s average excess availability, of either 0.25% or 0.50%. LIBOR Rate loans, which may be either for 1 month or 3 months, will bear interest at (i) the LIBOR rate, or the Benchmark Rate as defined in the credit agreement plus (ii) a varying percentage based on the Company’s average excess availability, of either 1.25% or 1.50%. Any swingline loan will bear interest at a rate equal to the rate of a Base Rate loan, plus a varying percentage based on the Company’s average excess availability, of either 0.25% or 0.50%. The Company will be subject to an unused line fee of 0.25%.
The Company’s obligations under the New Credit Facility are secured by a lien on substantially all of its assets. If the Company’s availability under the New Credit Facility at any time is less than the greater of (i) 10% of the Revolving Loan Cap (the lesser of the aggregate revolving commitments or the borrowing base) and (ii) $7.5 million, then the Company is required to maintain a minimum consolidated fixed charge coverage ratio of 1.0:1.0 until such time as availability has exceeded the greater of (1) 10% of the Revolving Loan Cap and (2) $7.5 million for 30 consecutive days.
In connection with the execution of the New Credit Facility, the Company terminated its Prior Credit Facility and paid outstanding obligations of $30,874, related to its unused line fee and letter of credit fees. At the same time, all guarantees and security interests associated with the Prior Credit Agreement were released. There were 0 outstanding borrowings under the Prior Credit Facility at the time of termination and 0 prepayment penalty fees.
At October 30, 2021,29, 2022, the Company had 0no borrowings outstanding under the revolving credit facilityCredit Facility and unused availability under the New Credit Facility was $74.090.2 million. Average monthlyThe Company had no borrowings outstanding during the first nine months of fiscal 2021 were $21.8 million,2022, resulting in an average unused excess availability of approximately $49.782.0 million. Outstanding standby letters of credit were $2.73.8 million and outstanding documentary letters ofwere $1.21.0 million at October 30, 2021.29, 2022. At October 30, 2021,29, 2022, the Company’s prime-based interest rate was 5.00%.
Interest costs incurred during the first nine months of fiscal 2021 were based on the Prior Credit Facility, which bore interest based upon either the Federal Funds rate or the LIBOR rate, at a rate equal to the following: (a) the Federal Funds rate plus a varying percentage based on the Company’s excess availability, of either 1.75% or 2.00%, or (b) the LIBOR rate (the Company being able to select interest periods of 1 week, 1 month, 2 months, 3 months or 6 months) plus a varying percentage based on the Company’s excess availability, of either 2.75% or 3.006.50%.
Borrowings and repayments for the first nine months ended October 30, 2021 and October 31, 2020 were as follows:
|
| For the nine months ended |
|
| For the nine months ended |
| |||||||
(in thousands) |
| October 30, 2021 |
|
| October 31, 2020 |
|
|
| October 30, 2021 |
| |||
Borrowings |
| $ | 40,297 |
|
| $ | 60,748 |
|
|
| $ | 40,297 |
|
Repayments |
|
| (100,030 | ) |
|
| (32,071 | ) |
|
| (100,030 | ) | |
Net borrowings (repayments) |
| $ | (59,733 | ) |
| $ | 28,677 |
|
| $ | (59,733 | ) |
12
Long-Term Debt
On March 16,The Company had no outstanding long-term debt during the first nine months of fiscal 2022.
During the first quarter of fiscal 2021, the Company refinanced its then existing $15.0 million FILO (first-in, last-out) loan and entered into a new $17.5 million FILO loan, (the “New FILO loan”). On September 3, 2021, the Companywhich was subsequently repaid in full its New FILO loan. In connection with the repayment, the FILO lender agreed to a reduction in the amount of the prepayment premium that otherwise would have been payable as a result of the Company’s early repayment. The Company paid a prepayment penalty of $1.1 million. The prepayment of the New FILO loan was made from cash on-hand. Interest under the New FILO loan bore interest at 8.5%.September 2021.
The Company paid interest and fees totaling $3.10.3 million and $2.4 million for the nine months ended October 30, 2021 and October 31, 2020, respectively. Included in the $3.1 million for the nine months ended October 29, 2022 and October 30, 2021, respectively. Included in the $3.1 million of interest and fees paid in fiscal 2021 was a prepayment fee of $1.1 million associated with the prepayment of the NewCompany $17.5 million FILO loan, as discussed above.loan. In connection with the execution of the Company's New Credit Facility and the prepayment of its Newthe FILO loan, in the third quarter of fiscal 2021, the Company also wrote-off a total of $0.8 million in unamortized debt issuance costs.
4. Leases
The Company leases all of its store locations and its corporate headquarters, which also includes its distribution center, which are classified asunder operating leases. The store leases typically have initial terms of 5 years to 10 years, with options that usually permit renewal for additional five-year periods. The initial term of the lease for the corporate headquarter was for 20 years, with the opportunity to extend for 6six additional consecutive periods of five years, beginning in fiscal 2026. The Company also leases certain equipment and other assets under operating leases, typically with initial terms of 3 to 5 years. The Company is generally obligated for the cost of property taxes, insurance and common area maintenance fees relating to its leases, which are considered variable lease costs and are expensed as incurred.
ASC 842 requires the assessment of any lease modification to determine if the modification should be treated as a separate lease and if not, modification accounting would be applied. Lease modification accounting requires the recalculation of the ROU asset, lease liability and lease expense over the respective lease term. In April 2020, the FASB issued guidance allowing entities to make a policy election to account for lease concessions related to the COVID-19 pandemic as though enforceable rights and obligations for those concessions existed. The election applies to any lessor-provided lease concession related to the impact of the COVID-19 pandemic, provided the concession does not result in a substantial increase in the rights of the lessor or in the obligations of the lessee. The Company opted not to elect this practical expedient and instead accounted for these rent concessions as lease modifications in accordance with ASC 842. As of October 30, 2021,29, 2022, the Company’s operating leases liabilities represent the present value of the remaining future minimum lease payments updated based on concessions and lease modifications.
Lease costs related to store locations are included in cost of goods sold including occupancy costs on the Consolidated Statements of Operations, and expenses and lease costs related to the corporate headquarters and equipment leases are included in selling, general and administrative expenses on the Consolidated Statements of Operations.
The following table is a summary of the Company’s components of net lease cost for the three and nine months ended October 30, 202129, 2022 and October 31, 2020:30, 2021:
|
| For the three months ended |
| For the nine months ended |
|
| For the three months ended |
| For the nine months ended |
| ||||||||||||||||||||||
|
| October 30, 2021 |
| October 31, 2020 |
| October 30, 2021 |
| October 31, 2020 |
|
| October 29, 2022 |
| October 30, 2021 |
| October 29, 2022 |
| October 30, 2021 |
| ||||||||||||||
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Operating lease cost |
| $ | 11,064 |
|
| $ | 11,824 |
|
| $ | 32,698 |
|
| $ | 35,756 |
|
| $ | 11,365 |
|
| $ | 11,064 |
|
| $ | 33,123 |
|
| $ | 32,698 |
|
Variable lease costs(1) |
|
| 3,284 |
|
|
| 3,690 |
|
|
| 10,473 |
|
|
| 10,759 |
|
|
| 3,261 |
|
|
| 3,284 |
|
|
| 9,534 |
|
|
| 10,473 |
|
Total lease costs |
| $ | 14,348 |
|
| $ | 15,514 |
|
| $ | 43,171 |
|
| $ | 46,515 |
|
| $ | 14,626 |
|
| $ | 14,348 |
|
| $ | 42,657 |
|
| $ | 43,171 |
|
13
Supplemental cash flow and balance sheet information related to leases for the first nine months ended October 29, 2022 and October 30, 2021 and October 31, 2020 iswas as follows:
|
|
|
|
|
|
| ||
(dollars in thousands) |
| For the nine months ended |
| |||||
Cash paid for amounts included in the measurement of lease liabilities: |
| October 29, 2022 |
|
| October 30, 2021 |
| ||
Operating cash flows for operating leases (1) |
| $ | 42,001 |
|
| $ | 43,846 |
|
Non-cash operating activities: |
|
|
|
|
|
| ||
Right-of-use assets obtained in exchange for operating lease liabilities |
| $ | 20,667 |
|
| $ | 6,099 |
|
|
|
|
|
|
|
| ||
Weighted average remaining lease term |
| 4.3 yrs. |
|
| 4.1 yrs. |
| ||
Weighted average discount rate |
| 6.45% |
|
| 6.95% |
|
13
|
|
|
|
|
|
| ||
(dollars in thousands) |
| For the nine months ended |
| |||||
Cash paid for amounts included in the measurement of lease liabilities: |
| October 30, 2021 |
|
| October 31, 2020 |
| ||
Operating cash flows for operating leases (1) |
| $ | 43,846 |
|
| $ | 33,233 |
|
Non-cash operating activities: |
|
|
|
|
|
| ||
Right-of-use assets obtained in exchange for operating lease liabilities |
| $ | 6,099 |
|
| $ | 645 |
|
Net decrease in right-of-use assets due to lease modifications |
| $ | - |
|
| $ | (2,283 | ) |
|
|
|
|
|
|
| ||
Weighted average remaining lease term |
| 4.1 yrs. |
|
| 4.7 yrs. |
| ||
Weighted average discount rate |
| 6.95% |
|
| 6.46% |
|
The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities recorded on the Consolidated Balance Sheet as of October 30, 2021:29, 2022:
(in thousands) |
|
|
|
|
|
| ||
2021 (remaining) |
| $ | 8,999 |
| ||||
2022 |
|
| 49,149 |
| ||||
2022 (remaining) |
| $ | 8,322 |
| ||||
2023 |
|
| 41,972 |
|
|
| 48,113 |
|
2024 |
|
| 32,173 |
|
|
| 40,063 |
|
2025 |
|
| 23,755 |
|
|
| 31,745 |
|
2026 |
|
| 19,266 |
| ||||
Thereafter |
|
| 16,674 |
|
|
| 21,241 |
|
Total minimum lease payments |
| $ | 172,722 |
|
| $ | 168,750 |
|
Less: amount of lease payments representing interest |
|
| 23,320 |
|
|
| 21,042 |
|
Present value of future minimum lease payments |
| $ | 149,402 |
|
| $ | 147,708 |
|
Less: current obligations under leases |
|
| 37,150 |
|
|
| 36,711 |
|
Long-term lease obligations |
| $ | 112,252 |
|
| $ | 110,997 |
|
5. Long-Term Incentive Plans
The following is a summary of the Company’s Long-Term Incentive Plan (“LTIP”). All equity awards granted under long-term incentive plans are issued from the Company’s stockholder-approved 2016 Incentive Compensation Plan. See Note 6, Stock-Based Compensation.
At October 30, 2021, the Company has three active LTIPs: the 2019-2021The LTIPs are granted annually and each LTIP 2020-2022 LTIP and 2021-2023 LTIP.covers a three-year performance period. Each participant in the LTIP participates based on that participant’s “Target Cash Value” which is defined as the participant’s annual base salary (on the participant’s effective date) multiplied by his or her LTIP percentage. Under each LTIP, 50% of each participant’s Target Cash Value is subject to time-based vesting and 50% is subject to performance-based vesting. Awards for any achievement of performance targets are not granted until the performance targets are achieved and then are subject to additional vesting through August 31 following the end of the applicable performance period.
2019-2021 LTIP
The time-based awards underperformance targets for the Company’s 2019-2021 LTIP were approved by the Compensation Committee of the Board of Directors (the "Compensation Committee”) on August 7, 2019 and covered a three-year period performance period, which ended on January 29, 2022. The time-vested portion of the 2019-2021 LTIP werevests in four annual installments, with the remaining installment vesting on April 1, 2023.
In the first quarter of fiscal 2022, on March 21, 2022, the Compensation Committee approved a 141.9% payout of its performance targets for the 2019-2021 LTIP. On that date, the Company granted awards totaling $2.7 million, in a combination of 50% RSUscash and 50% cash. Forrestricted stock units (RSUs), which vested, net of any forfeitures, on August 31, 2022. In connection with the grant of 269,162 RSUs, the Company reclassified $1.1 million of its liability accrual from “Accrued expenses and other current liabilities” to “Additional paid-in capital” in the first quarter of fiscal 2022. See the Consolidated Statement of Changes in Stockholders’ Equity.
Active LTIPs
At October 29, 2022, the Company had three active LTIPs: the 2020-2022 LTIP, the 2021-2023 LTIP and the 2022-2024 LTIP. The time-based awards under the 2020-2022 LTIP were granted in a combination of 50% stock options and 50% cash, and forcash; the 2021-2023 LTIP the time-based awards were granted in a combination of 25% stock options and 75% cash; and the 2022-2024 LTIP time-based awards were granted in a combination of 50% RSUs and 50% cash.
Performance targets for the 2019-2021 LTIP, 2020-2022 LTIP, 2021-2023 LTIP and 2021-20232022-2024 LTIP were established and approved by the Compensation Committee on August 7, 2019, June 11, 2020, and March 8, 2021 and April 9, 2022, respectively. The performance period for each LTIP is three years. Awards for any achievement of performance targets will not be granted until the performance targets are achieved and then will be subject to additional vesting through August 31, 2022,2023, August 31, 20232024 and August 31, 2024,2025, respectively. The time-based awards under the 2019-2021 LTIP, 2020-2022 LTIP, 2021-2023 LTIP and 2021-20232022-2024 LTIP vest in four equal installments through April 1, 2023,2024, April 1, 20242025 and April 1, 2025,2026, respectively. Assuming that the Company achieves the performance targets at target levels and all time-based awards vest, the compensation expense associated with the 2019-2021 LTIP, 2020-2022 LTIP, 2021-2023 LTIP and 2021-20232022-2024 LTIP is estimated to be approximately $3.83.7 million, $3.84.1 million and $4.04.7 million, respectively. Approximately half of the compensation expense for each LTIP relates to the time-based awards, which are being expensed straight-line over 4446 months, 4649 months and 4948 months, respectively.
14
At October 30, 2021,29, 2022, the Company hashad accrued $1.9 million under the 2019-2021 LTIP, $1.32.1 million under the 2020-2022 LTIP, $1.4 million under the 2021-2023 LTIP and $0.6 million under the 2021-20232022-2024 LTIP for the performance awards.
6. Stock-Based Compensation
The Company has one active stock-based compensation plan: the 2016 Incentive Compensation Plan (the “2016 Plan”). The initial share reserve under the 2016 Plan was 5,725,538 shares of common stock. A grant of a stock option award or stock appreciation right will reduce the outstanding reserve on a one-for-one basis, meaning 1one share for every share granted. A grant of a full-value award, including, but not limited to, restricted stock, restricted stock units and deferred stock, will reduce the outstanding reserve by a fixed ratio of 1.9 shares for every share granted. The Company’s shareholders approved amendments to increase the share reserve by 2,800,000 shares on August 8, 2019, an additional 1,740,000 shares on August 12, 2020 and an additional 4,855,000 on August 5, 2021. At October 30, 2021,29, 2022, the Company had 4,800,3863,975,145 shares available under the 2016 Plan.
In accordance with the terms of the 2016 Plan, any shares outstanding under the previous 2006 Incentive Compensation Plan (the “2006 Plan”) at August 4, 2016 that subsequently terminate, expire or are cancelled for any reason without having been exercised or paid are added back and become available for issuance under the 2016 Plan, with stock options being added back on a one-for-one basis and full-value awards being added back on a 1 to 1.9 basis. At October 30, 2021,29, 2022, 389,509263,341 stock options remained outstanding under the 2006 Plan.
The 2016 Plan is administered by the Compensation Committee. The Compensation Committee is authorized to make all determinations with respect to amounts and conditions covering awards. Options are not granted at a price less than fair value on the date of the grant. Except with respect to 5% of the shares available for awards under the 2016 Plan, no award will become exercisable unless such award has been outstanding for a minimum period of one year from its date of grant.
The following tables summarize the share activity and stock option activity for the first nine months of fiscal 2021:2022:
|
| RSUs (1) |
|
| Deferred |
| Performance |
| Total number |
|
| Weighted- |
|
| RSUs (1) |
|
| Deferred |
|
| Performance |
|
| Fully-Vested |
|
| Total number |
|
| Weighted- |
| |||||||||||||
Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Outstanding non-vested shares at beginning of year |
|
| 815,292 |
|
|
| 435,568 |
|
|
| 720,000 |
| 1,970,860 |
|
| $ | 1.69 |
|
|
| 515,291 |
|
|
| 435,568 |
|
|
| 240,000 |
|
|
| — |
|
|
| 1,190,859 |
|
| $ | 1.57 |
| ||
Shares granted |
|
| 8,054 |
|
|
| — |
|
|
| — |
| 8,054 |
|
| $ | 0.66 |
|
|
| 563,691 |
|
|
| — |
|
|
| — |
|
|
| 27,386 |
|
|
| 591,077 |
|
| $ | 5.09 |
| ||
Shares vested/issued |
|
| (308,055 | ) |
|
| — |
|
|
| (240,000 | ) |
|
| (548,055 | ) |
| $ | 2.05 |
| ||||||||||||||||||||||||
Shares vested and/or issued |
|
| (584,359 | ) |
|
| — |
|
|
| — |
|
|
| (27,386 | ) |
|
| (611,745 | ) |
| $ | 3.52 |
| ||||||||||||||||||||
Shares forfeited |
|
| (23,617 | ) |
|
|
|
|
|
|
|
|
|
|
| (23,617 | ) |
| $ | 3.89 |
| |||||||||||||||||||||||
Outstanding non-vested shares at end of quarter |
|
| 515,291 |
|
|
| 435,568 |
|
|
| 480,000 |
| 1,430,859 |
|
| $ | 1.54 |
|
|
| 471,006 |
|
|
| 435,568 |
|
|
| 240,000 |
|
|
| — |
|
|
| 1,146,574 |
|
| $ | 2.30 |
|
|
| Number of |
|
| Weighted- |
|
| Weighted- |
|
| Aggregate |
| ||||
Stock Options |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Outstanding options at beginning of year |
|
| 4,621,550 |
|
| $ | 0.90 |
|
| 8.2 years |
|
| $ | 16,066,914 |
| |
Options granted |
|
| 15,747 |
|
| $ | 5.41 |
|
|
| — |
|
|
| 1,262 |
|
Options exercised (1) |
|
| (752,938 | ) |
| $ | 0.71 |
|
|
|
|
|
| 3,636,343 |
| |
Options expired and canceled |
|
| (177,454 | ) |
| $ | 1.18 |
|
|
| — |
|
|
| 804,868 |
|
Outstanding options at end of quarter |
|
| 3,706,905 |
|
| $ | 0.95 |
|
| 7.4 years |
|
| $ | 21,505,348 |
| |
Options exercisable at end of quarter |
|
| 1,242,201 |
|
| $ | 1.56 |
|
| 6.3 years |
|
| $ | 6,447,396 |
|
|
| Number of |
|
| Weighted- |
|
| Weighted- |
|
| Aggregate |
| ||||
Stock Options |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Outstanding options at beginning of year |
|
| 3,647,581 |
|
| $ | 1.09 |
|
| 8.5 years |
|
| $ | 810,596 |
| |
Options granted (1) |
|
| 1,518,154 |
|
| $ | 0.71 |
|
|
| — |
|
|
| — |
|
Options exercised (2) |
|
| (429,955 | ) |
| $ | 0.81 |
|
|
|
|
|
| 2,211,896 |
| |
Options expired and canceled |
|
| (22,542 | ) |
| $ | 4.19 |
|
|
| — |
|
|
| — |
|
Outstanding options at end of quarter |
|
| 4,713,238 |
|
| $ | 0.98 |
|
| 8.3 years |
|
| $ | 28,912,358 |
| |
Options exercisable at end of quarter |
|
| 843,431 |
|
| $ | 2.67 |
|
| 5.4 years |
|
| $ | 3,748,935 |
|
15
(1)
For the first nine months of fiscal 2022, the Company granted stock options to purchase an aggregate of 1,078,913 shares of the Company’s common stock, at an exercise price of $0.69 per share, in connection with the time-based grant of awards under its 2021-2023 LTIP, see Note 5, Long-Term Incentive Plans. In March 2021, the Company also granted to active participants of the LTIP a discretionary grant of stock options to purchase an aggregate of 414,337 shares of the Company’s common stock, at an exercise price of $0.75 per share, which will vest ratably over 3 years.
563,691 restricted stock units and 27,386 fully-vested shares. For the first nine months of fiscal 2021, the Company granted stock options to purchase an aggregate of 1,518,154 shares of common stock and 8,054 restricted stock units. For the first nine months of fiscal 2020, the Company granted stock options to purchase an aggregate of 3,185,542 shares of common stock and 134,999 shares of deferred stock.
Non-Employee Director Compensation Plan
The Company granted 222,47857,307 shares of common stock, with a fair value of approximately $296,300254,218, to certain of its non-employee directors as compensation in lieu of cash in the first nine months of fiscal 2021.2022. These shares are in addition to any shares that may be granted under the 2016 Plan related to the requirement to receive equity if a director has not yet satisfied his or her minimum equity ownership requirement under the Non-Employee Director Compensation Plan.
Stock Compensation Expense
The Company recognized total stock-based compensation expense of $0.91.1 million and $1.10.9 million for the first nine months of fiscal 20212022 and fiscal 2020,2021, respectively. The total compensation cost related to time-vested stock options RSU and PSURSU awards not yet recognized as of October 30, 202129, 2022 was approximately $1.92.2 million, net of estimated forfeitures, which will be expensed over a weighted average remaining life of 2632 months.
7. Equity and Earnings per Share
At the Company's Annual Meeting of Stockholders held on August 5, 2021, the shareholders approved an amendment to the Company’s Restated Certificate of Incorporation to increase the authorized number of shares of its common stock from 100.0 million shares to 125.0 million shares.
The following table provides a reconciliation of the number of shares outstanding for basic and diluted earnings per share:
|
| For the three months ended |
|
| For the nine months ended |
| ||||||||||
|
| October 30, 2021 |
|
| October 31, 2020 |
|
| October 30, 2021 |
|
| October 31, 2020 |
| ||||
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Common stock outstanding: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic weighted average common shares outstanding |
|
| 63,699 |
|
|
| 51,545 |
|
|
| 63,126 |
|
|
| 51,127 |
|
Common stock equivalents – stock options, restricted stock units and deferred stock (1) |
|
| 4,945 |
|
|
| — |
|
|
| 4,252 |
|
|
| — |
|
Diluted weighted average common shares outstanding |
|
| 68,644 |
|
|
| 51,545 |
|
|
| 67,378 |
|
|
| 51,127 |
|
|
| For the three months ended |
|
| For the nine months ended |
| ||||||||||
|
| October 29, 2022 |
|
| October 30, 2021 |
|
| October 29, 2022 |
|
| October 30, 2021 |
| ||||
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Common stock outstanding: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic weighted average common shares outstanding |
|
| 62,016 |
|
|
| 63,699 |
|
|
| 62,928 |
|
|
| 63,126 |
|
Common stock equivalents – stock options, restricted stock units and deferred stock |
|
| 4,213 |
|
|
| 4,945 |
|
|
| 4,178 |
|
|
| 4,252 |
|
Diluted weighted average common shares outstanding |
|
| 66,229 |
|
|
| 68,644 |
|
|
| 67,106 |
|
|
| 67,378 |
|
The following potential common stock equivalents were excluded from the computation of diluted earnings per share in each period, because the exercise price of such options was greater than the average market price per share of common stock for the respective periods or because the unearned compensation associated with stock options, restricted stock units, or deferred stock had an anti-dilutive effect.
|
| For the three months ended |
|
| For the nine months ended |
|
| For the three months ended |
|
| For the nine months ended |
| ||||||||||||||||||||
|
| October 30, 2021 |
|
| October 31, 2020 |
|
| October 30, 2021 |
|
| October 31, 2020 |
|
| October 29, 2022 |
|
| October 30, 2021 |
|
| October 29, 2022 |
|
| October 30, 2021 |
| ||||||||
(in thousands, except exercise prices) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Stock options |
|
| — |
|
|
| 3,676 |
|
|
| 386 |
|
|
| 3,676 |
|
|
| 31 |
|
|
| — |
|
|
| 256 |
|
|
| 386 |
|
Restricted stock units |
|
| — |
|
|
| 833 |
|
|
| — |
|
|
| 833 |
|
|
| 55 |
|
|
| — |
|
|
| 65 |
|
|
| — |
|
Deferred stock |
|
| — |
|
|
| 191 |
|
|
| — |
|
|
| 191 |
| ||||||||||||||||
Range of exercise prices of such options |
|
| — |
|
| $0.53 - $7.02 |
|
| $4.19 - $5.50 |
| $0.53 - $7.02 |
|
| $4.48-$6.59 |
|
| — |
|
| $4.48 - $6.59 |
| $4.19 - $5.50 |
|
The above options, which were outstanding at October 30, 2021,29, 2022, expire from January 31,May 28, 2023 to June 29, 2028October 26, 2032.
Excluded from the computation of basic and diluted earnings per share were 240,000 shares for the third quarter and first nine months of fiscal 2022 and 480,000 shares for the threethird quarter and first nine months of fiscal 2021 and 720,000 shares of unvested performance stock units for the three and nine months of fiscal 2020.units. These performance-based awards
16
will be are included in the computation of basic and diluted earnings per share if, and when, the respective performance targets are achieved. In addition, 435,568 shares and 316,703 shares of deferred stock at October 29, 2022 and at October 30, 2021 and October 31, 2020, respectively, were excluded from basic earnings per share. Outstanding shares of deferred stock are not considered issued and outstanding until the vesting date of the deferral period.
8. Registered Direct Offering – Common Stock Repurchase Program
On February 5, 2021,March 15, 2022, the Company’s Board of Directors approved a stock repurchase program. Under the stock repurchase program, the Company sold, pursuantmay repurchase up to a stock purchase agreement and through a registered direct offering, an aggregate of $11,111,11115.0 sharesmillion of its common stock through open market and privately negotiated transactions.
16
The timing and the amount of any repurchases of common stock will be determined based on the Company’s evaluation of market conditions and other factors. The stock repurchase program commenced in the first quarter of fiscal 2022 and will expire on March 15, 2023, but may be suspended, terminated or modified at any time for a gross purchase priceany reason. The Company expects to finance the repurchases from operating funds and/or periodic borrowings on its credit facility.
There were no stock repurchases in the third quarter of fiscal 2022. For the first nine months of fiscal 2022, the Company repurchased 2.9 million shares at an aggregate cost of $5.012.7 million, before paymentincluding fees, from available cash on hand. Shares of offering costs of $repurchased common stock are held as treasury stock.0.6 million. The Company used the net proceeds from the offering for working capital and other general corporate purposes.
9. Income Taxes
Since the end of fiscal 2013, the Company has maintained a full valuation allowance against its deferred tax assets. During the second quarter of fiscal 2022, the Company determined that it was more likely than not that it would be able to realize the benefit of substantially all of its deferred tax assets in the United States. In reaching this determination, the Company considered the cumulative three years of profitability, its expectations regarding the generation of future taxable income as well as the overall improvement in the Company's business and its current market position. As a result, in the second quarter of fiscal 2022, the Company recognized a discrete tax benefit related to the release of approximately $35.5 million in valuation allowance against its deferred tax assets in the United States that are expected to be realized in future years. At October 29, 2022, the Company continued to provide a valuation allowance of $2.4 million primarily against certain state and foreign net operating losses ("NOLs").
For the third quarter of fiscal 2022, the Company recorded an income tax provision of $2.1 million, which included a $2.0 million discrete tax expense to adjust the release of the valuation allowance to reflect an increase in the Company's third quarter earnings and full-year earnings forecast. For the first nine months of fiscal 2022, the Company recorded an income tax benefit of $32.9 million, which included a discrete tax benefit of $33.5 million for the release of the valuation allowance discussed above.
For the third quarter and first nine months of fiscal 2021, the Company recorded an income tax expenseprovision of $94,000 and $548,000, respectively, primarily related to income tax in states where net operating loss ("NOL")NOL usage iswas statutorily limited. During the third quarter and first nine months of fiscal 2020, the
The Company recorded incomemade tax expensepayments of $27,0000.3 million and $71,0000.1, respectively, related primarily to state margin tax. The Company’s effective tax rate will generally differ from the U.S. federal statutory rate of 21% primarily due to the change in full valuation allowance recorded against its deferred tax assets, permanent items, and state taxes.
Since the end of fiscal 2014, the Company has maintained a full valuation allowance against its deferred tax assets. While the Company has returned to profitability million for the first nine months of fiscal 2022 and fiscal 2021, and has projected that it will generate taxable income and ultimately emerge from a three-year cumulative loss, the Company believes that a full valuation allowance remains appropriate until the Company generates a more consistent history of profitability. Realization of the Company’s deferred tax assets is dependent on generating sufficient taxable income in the near term.respectively.
For federal income tax purposes, at the end of fiscal 2020,2021, the Company had net operating loss carryforwards of approximately $158.2100.7 million, which will expire from fiscal 20222028 through fiscal 2037, and net operating loss carryforwards of $43.1 million that are not subject to expiration, available in the U.S. to reduce future taxable income.expiration. For state purposes, at the end of fiscal 2020,2021, the Company had $111.390.0 million of net operating losses that are available to offset future taxable income, the majority of which will expire from fiscal 20212028 through fiscal 2041.
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “will,” “estimate,” “intend,” “plan,” “continue,” “believe,” “expect” or “anticipate” or the negatives thereof, variations thereon or similar terminology. The forward-looking statements contained in this Quarterly Report are generally located in the material set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but may be found in other locations as well, and include statements regarding the continuing impact of the COVID-19 pandemic on our business and financial results, expected savings from our effortsexpectations with respect to right size our lease structure,sales trends, including expected sales trends,growth in the fourth quarter of 2022, expected marketing spend, expectedcosts in 2022, gross margin rate, improved inventory levels potentialand our management of inventory levels, our ability to realize our deferred tax assets, increased freight cost andcosts, increases in certain raw materials cost, increases,our long-term outlook, expected capital expenditures in 2022, our ability to attract new customers, and our liquidity expectations for the next 12 months.plans with respect to our store portfolio, including anticipated closures, re-brandings, and new and relocated stores. These forward-looking statements generally relate to plans and objectives for future operations and are based upon management’s reasonable estimates of future results or trends. The forward-looking statements in this Quarterly Report should not be regarded as a representation by us or any other person that our objectives or plans will be achieved. The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited Consolidated Financial Statements and notes to those statements included elsewhere in this Quarterly Report and our audited Consolidated Financial Statements for the year ended January 30, 2021,29, 2022, included in our Annual Report on Form 10-K for the year ended January 30, 2021,29, 2022, as filed with the Securities and Exchange Commission on March 19, 202117, 2022 (our “Fiscal 20202021 Annual Report”).
Numerous factors could cause our actual results to differ materially from such forward-looking statements. We encourage readers to refer to our “Risk Factors” found in Part I, Item 1A of our Fiscal 2020 Annual Report. This discussion sets forth certain risks and uncertainties that may have an impact on future results and direction of our Company, including, without limitation, risks relatingrelated to labor shortages, increased labor costs, changes in consumer spending in response to the duration and continuing impacteconomy, the ongoing effects of the COVID-19 pandemic, and itsthe economic impact onof the Company’s results of operations, thewar in Ukraine, our ability to navigate the supply chain uncertainties, andour ability to maintain sufficientappropriate inventory levels, the execution ofour ability to successfully execute on our corporate strategy, our ability to predict customer tastes and fashion trends, forecast sales growth trends andour ability to grow market share.share, and the other risks and uncertainties set forth in the “Risk Factors” section in Part I, Item 1A of our Fiscal 2021 Annual Report.
All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the foregoing. These forward-looking statements speak only as of the date of the document in which they are made. We disclaim any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in our expectations or any change in events, conditions or circumstances in which the forward-looking statement is based.
BUSINESS SUMMARY
Destination XL Group, Inc., together with our consolidated subsidiaries (the “Company”), is the largest specialty retailer of big and tall men’s clothing with retail wholesale and direct operations in the United States and Toronto, Canada.States. We operate under the trade names of Destination XL®, DXL®, DXL Outlets, Casual Male XL® and Casual Male XL Outlets. At October 30, 2021,29, 2022, we operated 220218 Destination XL stores, 16 DXL outlet stores, 3830 Casual Male XL retail stores, 2019 Casual Male XL outlet stores and a digital business, including an e-commerce site at dxl.com and a mobile site, m.destinationXL.com, mobile app and mobile app.third-party marketplaces.
Unless the context indicates otherwise, all references to “we,” “our,” “us” and “the Company” refer to Destination XL Group, Inc. and our consolidated subsidiaries. We refer to our fiscal years, which end on January 28, 2023, January 29, 2022 and January 30, 2021 and February 1, 2020 as “fiscal 2021,2022,” “fiscal 2020”2021” and “fiscal 2019,2020,” respectively. All three fiscal years are 52-week periods.
SEGMENT REPORTING
We currently have threetwo principal operating segments: our stores direct business and our wholesaledirect business. We consider our stores and direct business segments to be similar in terms of economic characteristics, production processes and operations, and have therefore aggregated them into one reportable segment, retail segment, consistent with our omni-channel business approach. Our wholesale segment was a third operating segment. In the first quarter of fiscal 2022, we ended the relationship with our primary wholesale customer. Due to the immateriality of the wholesale segment’s revenues, profits and assets, its operating results have been aggregated with the retail segment for all periods.
COMPARABLE SALES
Our customer’s shopping experience continues to evolve across multiple channels and we are continually adapting to meet the guest’s needs. The majority of our stores have the capability of fulfilling online orders if merchandise is not available in the warehouse. As a
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result, we continue to see more transactions that begin online but are ultimately completed at the store level. Similarly, if a customer visits a store and the item is out of stock, the associate can order the item through our website. A customer also has the ability to order online and pick-up in a store and more recently due to the COVID-19 pandemic, pick-up at curbside. We define store sales as sales
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that originate and are fulfilled directly at the store level. E-commerceDigital commerce sales, which we also refer to as direct sales, are defined as sales that originate online, whether through our website, at the store level or through a third-party marketplace.
Stores that have been open for at least 13 months are included in comparable sales. Stores that have been remodeled or re-located during the period are also included in our determination of comparable stores sales. Stores that have been expanded by more than 25% are considered non-comparable for the first 13 months. If a store becomes a clearance center, it is also removed from the calculation of comparable sales. The method of calculating comparable sales varies across the retail industry and, as a result, our calculation of comparable sales is not necessarily comparable to similarly titled measures reported by other retailers.
The Company has not carved-out prior year sales for periods where the stores were temporarily closed in fiscal 2020 due to the pandemic. However, because the Company’s store in Canada was closed by government edict for a significant portion of the first nine months of fiscal 2021, we have removed it from the current calculation of comparable sales.
RESULTS OF OPERATIONS
Continuing Impact of COVID-19 Pandemic on Our Business
On March 11, 2020, the World Health Organization declared COVID-19 as a global pandemic. While the pandemic had an adverse effect on our business, financial condition and result of operations in fiscal 2020, we are hopeful that the worst is behind us and we are on the road to recovery. Substantial uncertainty remains regarding the duration of the pandemic, the potential impact of new variants, and the long-term effect of the pandemic on the global economy and its supply chain, unemployment, and overall consumer demand and spending.
Executive Summary
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| For the three months ended |
| For the nine months ended | ||||||||||||||
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| October 29, 2022 |
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| October 30, 2021 |
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| October 29, 2022 |
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| October 30, 2021 |
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(in millions, except percentage of sales and per share data) |
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Sales |
| $ | 129.7 |
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| $ | 121.5 |
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| $ | 402.0 |
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| $ | 371.6 |
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Net income |
| $ | 10.5 |
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| $ | 13.7 |
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| $ | 80.8 |
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| $ | 46.8 |
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Adjusted EBITDA (Non-GAAP basis) |
| $ | 16.4 |
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| $ | 19.0 |
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| $ | 59.6 |
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| $ | 62.5 |
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Gross Margin. as a percentage of sales |
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| 50.0 | % |
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| 50.2 | % |
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| 50.8 | % |
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| 49.4 | % |
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SG&A expenses, as a percentage of sales |
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| 37.3 | % |
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| 34.5 | % |
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| 35.9 | % |
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| 32.5 | % |
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Per diluted share: |
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Net income |
| $ | 0.16 |
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| $ | 0.20 |
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| $ | 1.20 |
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| $ | 0.69 |
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The following review of our results for third quarter and first nine months of fiscal 2021 includes certain comparisons against the third quarter and first nine months of fiscal 2019 in addition to the third quarter and first nine months of fiscal 2020. Due to the COVID-19 pandemic and its impact on our results during the first nine months of fiscal 2020, we believe that the additional discussion against the third quarter and first nine months of fiscal 2019 is a more meaningful comparison with respect to the progress the Company made through the end of the third quarter of fiscal 2021.
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| For the three months ended |
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| For the nine months ended |
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| October 30, 2021 |
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| October 31, 2020 |
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| November 2, 2019 |
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| October 30, 2021 |
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| October 31, 2020 |
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| November 2, 2019 |
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(in millions, except percentage of sales and per share data) |
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Sales |
| $ | 121.5 |
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| $ | 85.2 |
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| $ | 106.6 |
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| $ | 371.6 |
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| $ | 218.8 |
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| $ | 342.8 |
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Net income (loss) |
| $ | 13.7 |
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| $ | (7.0 | ) |
| $ | (7.2 | ) |
| $ | 46.8 |
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| $ | (59.5 | ) |
| $ | (10.2 | ) |
Adjusted EBITDA (Non-GAAP basis) |
| $ | 19.0 |
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| $ | (1.7 | ) |
| $ | 1.7 |
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| $ | 62.5 |
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| $ | (24.9 | ) |
| $ | 13.6 |
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Gross Margin. as a percentage of sales |
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| 50.2 | % |
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| 36.5 | % |
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| 41.1 | % |
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| 49.4 | % |
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| 30.1 | % |
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| 43.1 | % |
SG&A expenses, as a percentage of sales |
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| 34.5 | % |
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| 38.5 | % |
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| 39.5 | % |
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| 32.5 | % |
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| 41.5 | % |
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| 39.1 | % |
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Per diluted share: |
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Net income (loss) |
| $ | 0.20 |
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| $ | (0.14 | ) |
| $ | (0.14 | ) |
| $ | 0.69 |
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| $ | (1.16 | ) |
| $ | (0.21 | ) |
We are pleased to report continued earnings and sales growth this quarter, with results exceeding our internal expectations, especially up against a very strong third quarter last year. Comparable sales increased 8.7% for the quarter, with strong performance from our stores, which were up 10.1% for the third quarter, with all regions reporting sales growth over last year. This growth was primarily driven by higher dollars per transactions and conversion. The increase in dollars per transactions was attributable to our reduced reliance on promotions and a shift in merchandise mix to higher-price items, such as tailored clothing. Our direct business had a comparable sales increase of 5.5% for the third quarter, driven primarily by our web, app and marketplaces. Our gross margin rate for the third quarter continued to benefit from the low promotions and clearance enabling us to partially offset the increase in freight and raw material costs that we continue to experience. In line with our expectations, our selling, general and administrative expenses (SG&A) increased by 280 basis points during the third quarter, with our marketing costs representing approximately 140 basis points of this increase. The remainder of the increase in SG&A was primarily due to increased payroll costs to support sales growth and higher accruals for performance-based incentive plans. As a result, net income for the third quarter was $10.5 million, or $0.16 per diluted share, as compared to net income for the third quarter of fiscal 2021 wasof $13.7 million, or $0.20 per diluted share, asshare.
At October 29, 2022, we had no debt outstanding and we did not borrow from our credit facility during the first nine months. Our unused excess availability at October 29, 2022 was $90.2 million. At the end of the third quarter, we are in a strong inventory position and have been able to replenish those categories that were depleted last year. As a result, our inventory level at the end of the third quarter was intentionally up 29.8% from last year, but was down 11.1%, when compared to a net lossthe end of $(0.14) per diluted sharethe third quarter in fiscal 2019 inventory, or pre-pandemic levels. In addition, we have improved our inventory turn by over 30% from the third quarter of fiscal 2020 and a net loss of $(0.14) per diluted share in the third quarter of fiscal 2019. Results for the third quarter exceeded our expectations and were driven by a strong sales performance in both stores and direct, an improved merchandise margin, and improved operating leverage from lower occupancy costs and SG&A expenses.
DuringAs we previously disclosed, the third quarterCompany's Board of fiscal 2021, we continued to see our business grow across all customer channelsDirectors approved a $15.0 million stock repurchase program in March 2022 and, we believe we are actively growing our market share. Our primary focus has been on customer acquisition, which was up 34% over the third quarter of fiscal 2019, an increase from 28.5% in the second quarter of fiscal 2021. This growth, coupled with our increase in conversion rates and dollars per transaction, drove a comparable sales increase of 22.9% as compared to the third quarter of fiscal 2019. We also continued to see strong improvements in our gross margin which improved 910 basis points during the third quarter of fiscal 2021, as compared to the third quarter of fiscal 2019. This improvement was the result of our low promotional posture and reduced occupancy costs from our lease renegotiations.
While we are excited about the results and the growth in our business that we have seen during the first nine months of fiscal 2021,2022, we utilized our free cash flow to repurchase 2.9 million shares of our common stock, at an aggregate cost of $12.7 million, including fees. There were no repurchases of stock during the third quarter of fiscal 2022.
Our results year-to-date have outperformed our expectations and we believe that we are well-positioned as we head into the fourth quarter. While we remain cautious due to the ongoing supply chain and labor issues andoptimistic, we are cognizant of the potential impact those issuesthat inflation and other macro-economic factors may have on fourth quarter consumer spending. We expect to grow our comparable sales in the fourth quarter. Our ability to secure sufficient inventory to meet sales demand remains our primary focus. In addition, the supply chain disruptionsquarter by single digits.
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have increased our cost of freight due to the shortages of vessels for overseas product, port congestion, and labor shortages of truck drivers, which we expect will continue well into fiscal 2022.
From a liquidity perspective, we accomplished two significant transactions during the third quarter: (1) we prepaid our $17.5 million FILO loan, which had an interest rate of 8.50%; and (2) we executed a new, five-year credit facility with Citizens Bank, which replaces our prior credit facility that was scheduled to expire in May 2023. At October 30, 2021, we had no outstanding debt, cash of $6.9 million and availability under our new credit facility of $74.0 million. This compares to total debt, net of cash, of $61.5 million at October 31, 2020 and $77.5 million at November 2, 2019.
Financial Summary
Sales
The following tables presenttable presents sales by segment for the three and nine months ended October 29, 2022 and October 30, 2021, October 31, 2020 and November 2, 2019:2021:
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| For the three months ended |
| For the Three Months Ended |
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| For the Nine Months Ended |
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(in thousands, except percentages) |
| October 30, 2021 |
| October 31, 2020 |
| November 2, 2019 |
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(in thousands) | October 29, 2022 |
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| October 30, 2021 |
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| October 29, 2022 |
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| October 30, 2021 |
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Store sales |
| $ | 84,762 |
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| 70.3 | % |
| $ | 53,363 |
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| 66.6 | % |
| $ | 81,054 |
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| 78.1 | % | $ | 91,770 |
| 70.8 | % | $ | 84,762 |
| 70.3 | % |
| $ | 280,973 |
| 70.0 | % | $ | 258,685 |
| 70.5 | % | ||||
Direct sales |
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| 35,837 |
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| 29.7 | % |
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| 26,764 |
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| 33.4 | % |
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| 22,676 |
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| 21.9 | % |
| 37,901 |
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| 29.2 | % |
| 35,837 |
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| 29.7 | % |
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| 120,588 |
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| 30.0 | % |
| 108,043 |
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| 29.5 | % |
Retail segment |
| $ | 120,599 |
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| $ | 80,127 |
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| $ | 103,730 |
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| $ | 129,671 |
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| $ | 120,599 |
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| $ | 401,561 |
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| $ | 366,728 |
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Wholesale segment |
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| 887 |
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| 5,044 |
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| 2,851 |
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| — |
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| 887 |
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| 399 |
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| 4,842 |
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Total Sales |
| $ | 121,486 |
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| $ | 85,171 |
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| $ | 106,581 |
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| For the nine months ended |
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(in thousands, except percentages) |
| October 30, 2021 |
| October 31, 2020 |
| November 2, 2019 |
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Store sales |
| $ | 258,685 |
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| 70.5 | % |
| $ | 124,155 |
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| 60.0 | % |
| $ | 262,888 |
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| 78.5 | % | |||||||||||||||||||||||||
Direct sales |
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| 108,043 |
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| 29.5 | % |
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| 82,605 |
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| 40.0 | % |
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| 71,915 |
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| 21.5 | % | |||||||||||||||||||||||||
Retail segment |
| $ | 366,728 |
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| $ | 206,760 |
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|
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| $ | 334,803 |
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Wholesale segment |
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| 4,842 |
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|
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| 12,080 |
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| 7,996 |
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Total Sales |
| $ | 371,570 |
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|
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| $ | 218,840 |
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| $ | 342,799 |
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Total sales | $ | 129,671 |
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| $ | 121,486 |
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| $ | 401,960 |
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| $ | 371,570 |
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Total sales for the third quarter of fiscal 20212022 were $121.5$129.7 million, as compared to $85.2$121.5 million in the third quarter of fiscal 20202021. Comparable sales for the third quarter were up 8.7% with comparable sales from our stores up 10.1% and $106.6 millionour direct business up 5.5%.
Store sales for the third quarter exceeded our plan, driven primarily by increases in dollars per transaction and conversion. The increase in dollars per transaction was attributable to a combination of factors, including less markdowns as a result of fewer promotions and deeper penetration in high-ticket categories such as tailored clothing. All regions outperformed the prior year third quarter, with the southeast region showing the strongest sales increase. The growth in our direct business of 5.5% was driven primarily by our web and app with continued growth from online marketplaces. Stores accelerated and outpaced the direct business in total during the third quarter, as consumers continued to return to stores at an increasing level.
Compared to the third quarter of fiscal 2019. At October 30, 2021, we had 294 stores as compared2019, the last normalized selling year, our comparable sales for the third quarter of fiscal 2022 were up 33.7%. We believe the comparison to 316 stores at October 31, 2020 and 326 stores at November 2, 2019.fiscal 2019 is relevant when evaluating our sales performance given the impact of the pandemic on the past two years.
As compared to the third quarter of fiscal 2020, comparable sales2021, for the quarter were up 53.9%, with comparable sales from our stores up 64.8% and the direct business up 32.4%. Due to the COVID-19 pandemic, our stores were negatively impacted in the third quarter of 2020 by temporary closings and reduced customer demand.
As compared to the third quarter of fiscal 2019,2022 comparable sales were up 7.4% in August, up 8.5% in September and up 10.3% in October. We are aware of the potential macro-economic impact on consumer spending in the fourth quarter. As a result, while we remain optimistic, we are conservatively forecasting comparable sales growth for the third quarter were up 22.9% driven primarily by our direct business, which was up 56.5% and our stores, which were up 12.9%. The increase in our direct business was principally due to our DXL.com e-commerce site, which had a sales increase of 66.8% as compared to the thirdfourth quarter of fiscal 2019.2022 to be single digits.
The comparable sales growth in stores of 12.9% was driven by strong conversion rates and an increase in dollars per transaction. All regions reported a comparable sales increase for the third quarter, as compared to the third quarter of fiscal 2019, with the strongest improvements in the Southeast, Midwest, and South Central parts of the country, which exceeded the Pacific Northwest, Northeast and Mid-Atlantic by approximately 500 basis points. As a result of the growth experienced in our direct business during the third quarter of fiscal 2021, direct sales represented 29.7% of total retail sales as compared to 21.9% of total retail sales in the third quarter of fiscal 2019. Through our digital efforts and marketplace presence, we are attracting a new customer to DXL and during the third quarter we saw a 34% increase as compared to 2019 in our new-to-file which contributed to our top-line growth.
Sales from our wholesale business were $0.9 million for the third quarter, as compared to $5.0 million in the third quarter of 2020 and $2.9 million in the third quarter of 2019. The decrease in sales from our wholesale business during the third quarter of fiscal 2021 was primarily due to supply chain challenges and their impact on order volume.
For the first nine months of fiscal 2021,2022, total sales were $371.6increased 8.2% to $402.0 million, as compared to $218.8$371.6 million for the first nine months of fiscal 2020 and $342.8 million for the first nine months of fiscal 2019.2021. Comparable sales for the first nine months of fiscal 2021,2022, as compared to fiscal 2020,2021, increased 81.0%10.9%, with comparable sales from our stores up 116.0%10.7% and theour direct business up 29.0%11.5%. Comparable sales
As we previously disclosed, during the first quarter of fiscal 2022, we ended our relationship with our primary wholesale customer. As a result, our wholesale revenues for the first nine months of fiscal 2021, as compared to fiscal 2019, increased 16.1%, with comparable sales from
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stores up 6.5% and the direct business up 49.4%. For the first nine months of fiscal 2021, sales from wholesale2022 were $4.8$0.4 million as compared to $12.1$4.8 million for the first nine months of fiscal 2020 (which included the sale of masks) and $8.0 million for the first nine months of fiscal 2019.2021.
Gross Margin Rate
For the third quarter of fiscal 2021,2022, our gross margin rate, inclusive of occupancy costs, was 50.2%50.0% as compared to a gross margin rate of 36.5%50.2% for third quarter of fiscal 2020 and 41.1% for the third quarter of fiscal 2019.2021.
As compared to fiscal 2020, the 1370 basis point improvement was due toOur gross margin rate decreased by 20-basis points, with a 710 basis point improvementdecrease in merchandise margins, drivenmargin of 70-basis points, partially offset by lower promotional markdowns, and a 600 basis50-basis point improvement in occupancy costs due to the leveraging of sales and savings realizedincreased leverage from the renegotiated lease reductions.
As compared to fiscal 2019, our gross margin rate improved by 910 basis points, driven by a 430 basis point improvement in merchandise margins and a 480 basis point improvement in occupancy costs. On a dollar basis, our occupancy costs decreased by $3.2 million, as a result of our lease renegotiations as well as closed stores.sales. The improvementdecrease in merchandise margin of 430 basis70-basis points was primarilydue to increased costs for raw materials, increased shipping costs per package, driven by higher fuel costs and surcharges, and a higher penetration of our lowmarketplace business, which has commission costs. Those increases were partially offset by lower promotional strategy and low clearance levels. Partially offsetting the savings from the reduction in markdowns was the continuing increase in the cost of freight due to shortages of vessels for overseas product, port congestion, and labor shortages of truck drivers.markdowns. We estimate that supply chain disruption negatively impacted gross margin by approximately 100 basis points and we expect that we will continue to experienceoptimize our pricing and promotional cadence to mitigate cost increases related to these supply chain issues as well as due to the increase in the cost of certain raw materials, particularly cotton, well into fiscal 2022.and preserve our margin rates.
For the first nine months of fiscal 2021,2022, our gross margin rate, inclusive of occupancy costs, was 49.4%50.8%, as compared to a gross margin rate of 30.1%49.4% for the first nine months of fiscal 20202021. The increase of 140-basis points was due to an improvement of 110-basis points in occupancy costs, due to the increased leverage from sales, and 43.1% for the third quarteran increase in merchandise margins of fiscal 2019. As compared30-basis points, due primarily to fiscal 2020, our gross margin rate improved by 1,930 basis points, drivenlower promotional markdowns partially offset by an increase in merchandise margin of 950 basis pointsfreight and an improvement in occupancy costs as a percentage of sales of 980 basis points. As compared to fiscal 2019, the 630 basis point improvement in gross margin was due to a 260 basis point improvement in merchandise margins and a 370 basis point improvement in occupancyshipping costs.
Selling, General and Administrative Expenses
As a percentage of sales, SG&A (selling, general and administrative) expenses for the third quarter of fiscal 20212022 were 34.5%37.3% as compared to 38.5%34.5% for the third quarter of fiscal 20202021. The SG&A rate for third quarter of fiscal 2021 was abnormally low due to the surge in sales from pent-up demand and stimulus money while at the same time experiencing a shortage in store staffing. However,
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our SG&A rate as a percentage of sales is favorable when compared against 39.5% forin the third quarter of fiscal 2019.2019, which was our last normalized third quarter, pre-pandemic.
As compared to the third quarter of fiscal 2020, onOn a dollar basis, SG&A expenses increased by $9.1$6.4 million or 27.9%. The increase was primarily due to increases in store payroll costs to support the increase in sales, increased advertising costs and incentive accruals. These increases were partially offset by realized cost savings implemented in fiscal 2020, including a reduction in corporate and field employees and the termination of certain service contracts and professional fees.
Asas compared to the third quarter of fiscal 2019, on a dollar basis, SG&A expenses decreased by $0.1 million. SG&A expenses2021. The increase was primarily due to an increase in marketing costs to drive customer acquisition and engagement, payroll costs to support sales growth, including merit adjustments and filling open positions, and an increase in performance-based incentive accruals. Our marketing costs for the third quarter of fiscal 2021 reflected an increase2022 represented 5.9% of sales as compared to 4.5% in advertising expenses, incentive-based accruals and merit adjustments, offset by lower store and corporate payroll as a resultthe third quarter of preserving last year’s headcount reductions.fiscal 2021. For fiscal 2022, we are expecting marketing costs to be approximately 6.2% of sales.
For the first nine months of fiscal 2021,2022, SG&A expenses were 32.5%35.9% of sales as compared to 41.5%32.5% of sales for the first nine months of fiscal 2020 and 39.1% for2021. Similar to the third quarter, the prior year rate was abnormally low. When compared against the first nine months of fiscal 2019.2019 when the rate was 39.1% of sales, the savings that we have been able to realize in our SG&A costs is evident. As compared to the first nine months of fiscal 2019,2021, SG&A costs were down $13.3increased $23.6 million, or 9.9%19.5%, as a result of our cost-savings initiatives, reductions in storeincreased marketing costs, payroll costs to support sales growth, annual merit adjustments, filling open positions and reduced marketing costs, partially offset by an increase in incentive-basedperformance-based incentive accruals. Marketing costs represented 5.5% of sales for the first nine months of fiscal 2022 as compared to 3.7% for the first nine months of fiscal 2021.
Management views SG&A expenses through two primary cost centers: Customer Facing Costs and Corporate Support Costs. Customer Facing Costs, which include store payroll, marketing and other store and direct operating costs, represented 18.1%20.4% of sales forin the first nine months of fiscal 20212022 as compared to 22.9%18.1% of sales forin the first nine months of fiscal 2019.2021. Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 15.5% of sales in the first nine months of fiscal 2022 compared to 14.4% of sales in the first nine months of fiscal 2021.
Impairment (Gain) of Assets
There were no impairments or non-cash gains recognized in the third quarter of fiscal 2022. During the third quarter of fiscal 2021, we recorded non-cash gains of $1.2 million, and for the first nine months of fiscal 2021 compared to 16.2% of sales for the first nine months of fiscal 2019. For the first nine months of fiscal 2020, Customer Facing Costs were 19.8% of sales2022 and Corporate Support Costs were 21.7% of sales.
Impairment of Assets
For the third quarter and first nine months of fiscal 2021, we recognizedrecorded non-cash gains of $1.2$0.6 million and $2.3 million, respectively. These non-cash gains related to the reduction of our operating lease liability in connection with our decision to close certain retail stores, which resulted in a revaluation of the existing lease liabilities.liability. The portion of the gains that related to previously recorded impairment charges against the operating lease right-of-use asset were included as an offset to previously recorded asset impairment charges. Accordingly, for the third quarter and first nine months of fiscal 2021, $1.1 million and $2.1 million were included as an offset to asset impairment charges, respectively. The remaining $0.1 million and $0.2 million of the gains for the third quarter and first nine months of fiscal 2021, respectively, was included as a reduction of store occupancy costs.
For the third quarter of fiscal 2020, we recognized a non-cash gain of $1.22021, and $0.4 million related to the closure of certain stores, which had previously been impaired. Accordingly, $1.1and $2.1 million of the $1.2 million, related to previously recorded impairment charges was included as an offset to asset impairment charges, with the remaining $0.1 million included as a reduction of store occupancy costs. The results
21
for the first nine months of fiscal 2020, include an impairment charge of $16.3 million, recorded2022 and fiscal 2021, respectively, were included in the first quarterImpairment (Gain) of fiscal 2020 as a resultAssets line of the significant impact that the COVID-19 pandemic had on our business and the continued uncertainty at that time.Consolidated Statement of Operations. The impairment charge included approximately $12.5 million for the write-down of certain right-of-use assets and $3.8 million for the write-down of property and equipment, relatedremaining gains were recorded as a reduction to occupancy costs in each period.stores where the carrying value exceeded fair value.
Depreciation and Amortization
Depreciation and amortization for the third quarter of fiscal 20212022 decreased to $4.1$3.8 million as compared to $5.3$4.1 million for the third quarter of fiscal 2020.2021. For the first nine months of fiscal 2021,2022, depreciation and amortization decreased to $13.0$11.7 million as compared to $16.4$13.0 million for the first nine months of fiscal 2020.2021. The decrease was due to a lower depreciable cost base, especially from our store assets.assets, due to our limited capital spending since fiscal 2020.
Interest Expense, Net
Interest expense for the third quarter of fiscal 20212022 was $2.2$0.1 million, as compared to $1.1$2.2 million for the third quarter of fiscal 2020 and $0.9 million for the third quarter of fiscal 2019. The increase in interest expense for the third quarter of fiscal 2021 was due to a prepayment penalty of $1.1 million in connection with the Company's early repayment of its $17.5 million FILO loan as well as $0.8 million for the write-off of unamortized debt issuance costs associated with both the FILO loan and our prior credit facility. These costs were partially offset by a decrease in interest expense due to reduced borrowing levels in the third quarter of fiscal 2021 as compared to the prior years' third quarters.
2021. For the first nine months of fiscal 20212022, interest expense was $4.3$0.4 million as compared to $2.9$4.3 million for the first nine months of fiscal 20202021. The Company had no outstanding debt and $2.6 million forno borrowings under its credit facility during the third quarter and first nine months of fiscal 2019. The increase2022 resulting in interest expense is primarily related to the prepayment fee on the FILO loan of $1.1 million and the write-off of unamortized debt issuance costs for the year to date period of $0.9 million. This increase was partially offset by a decrease in interest expense dueas compared to reduced borrowing levels for the third quarter and first nine months of fiscal 2021 as compared to the prior periods.
Income Taxes
We established a full valuation allowance against our deferred tax assets at the end of fiscal 2014. While the Company has returned to profitability for the first nine months of fiscal 2021, and has projected that it will generate taxable income and ultimately emerge from a three-year cumulative loss, the Company believes that a full valuation allowance remains appropriate until the Company generates a more consistent history of profitability.
Our tax provision2021. Interest expense for the third quarter and first nine months of fiscal 2021 included a prepayment penalty of $1.1 million associated with the Company's early prepayment of its long-term debt.
Income Taxes
Since the end of fiscal 2013, we have maintained a full valuation allowance against our deferred tax assets. During the second quarter of fiscal 2022, we determined that it was more likely than not that we would be able to realize the benefit of substantially all of our deferred tax assets in the United States. In reaching this determination, we considered the cumulative three years of profitability, our expectations regarding the generation of future taxable income as well as the overall improvement in the Company's business and its current market position. As a result, in the second quarter of fiscal 2022, we recognized a tax benefit related to the release of approximately $35.5 million in valuation allowance against our deferred tax assets in the United States. At October 29, 2022, we continued to provide a valuation allowance of $2.4 million, primarily due toagainst certain state and foreign net operating losses ("NOLs").
For the third quarter of fiscal 2022, we recorded an income tax provision of $2.1 million, which included a $2.0 million discrete tax expense to adjust the release of the valuation allowance to reflect an increase in states where NOL usage is statutorily limited. Ourthird quarter earnings and full-year earnings forecast.
21
For the first nine months of fiscal 2022, we recorded an income tax provisionbenefit of $32.9 million, which included a discrete tax benefit of $33.5 million for the release of the valuation allowance.
For the third quarter and first nine months of fiscal 20202021, we recorded an income tax provision of $94,000 and $548,000, respectively, primarily related to income tax in states where NOL usage was primarily due to state margin tax, based on gross receipts less certain deductions.statutorily limited.
Net Income (Loss)
For the third quarter of fiscal 2021,2022, we recorded net income of $10.5 million, or $0.16 per diluted share, as compared to net income of $13.7 million, or $0.20 per diluted share, compared with a net loss of $(7.0) million, or $(0.14) per diluted share, for the third quarter of fiscal 2020 and a net loss of $(7.2) million, or $(0.14) per diluted share, for2021. The decrease in earnings from the prior year third quarter was primarily due to the planned investment in marketing, an increase in payroll to support the increased sales volume and an increase in tax provision as a result of the reversal of the valuation allowance. As mentioned previously, our operating cost structure in fiscal 2019.2021 was insufficient to support our 2022 sales growth objectives and was unsustainable over the long-term.
For the first nine months of fiscal 2021,2022, we hadhave recorded net income of $80.8 million, or $1.20 per diluted share, as compared to net income of $46.8 million, or $0.69 per diluted share, compared to a net loss of $(59.5) million, or $(1.16) per diluted share, for the first nine months of fiscal 2020 and a net loss of $(10.2) million, or $(0.21) per diluted share,2021. Results for the first nine months of fiscal 2019.2022 include a non-cash tax benefit of $33.5 million, or $0.50 per diluted share, related to the release of substantially all of the Company's valuation allowance against its deferred tax assets.
Inventory
As of October 30, 2021,29, 2022, our inventory decreasedincreased approximately $12.6$24.5 million to $82.3$106.8 million, as compared to $94.9$82.3 million at October 31, 202030, 2021. We are in a stronger inventory position at October 29, 2022 than at the end of the third quarter last year. This increase was purposeful in order to replenish several categories that were depleted last year. While our inventory has increased over last year's third quarter, inventory is down 11.1% and decreased approximately $37.9 million as compared to $120.2 million at November 2, 2019. Maintaining sufficient inventory levelsturnover is up over 30% from the third quarter of fiscal 2019, or pre-pandemic levels. Managing our inventory remains a primary focus for us given our current sales trends and the ongoing disruptions inpotential impact that inflation may have on consumer spending. As we head into the global supply chain. Wefourth quarter of fiscal 2022, we believe that we will be able to secure sufficientare in a strong inventory to support our sales forecasts. At the same time, we are continuing to manage inventory conservatively, narrowing our assortment while driving meaningfully greater levels of exclusivity with national brands.position. At October 30, 2021,29, 2022, our clearance inventory was 6.4%6.7% of our total inventory, as compared to 11.8%8.9% at October 31, 202030, 2021 and 10.0% at November 2, 2019.
SEASONALITY
Historically, and consistent with the retail industry, we have experienced seasonal fluctuations as it relates to our operating income and net income. Traditionally, a significant portion of our operating income and net income is generated in the fourth quarter, as a result of the “Holiday” season.
22
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash generated from operations and availability under our prior and new credit facilities. We took several actions during fiscal 2020 to preserve our liquidity, and in the first quarter of fiscal 2021, we further strengthened our liquidity position by completing a direct offering of our common stock, which raised $4.4 million, net of offering costs. In the first quarter, we refinanced our then existing $15.0 million FILO loan by entering into a new $17.5 million FILO loan, which increased our borrowing capacity. As a result of our improved earnings and free cash flow, in the third quarter of fiscal 2021, we used a portion of the excess cash flow to prepay the FILO loan, which bore an interest rate of 8.50%.facility. At October 30, 2021,29, 2022, we had no outstanding debt, including no borrowings under our revolving credit facility.facility during the first nine months of fiscal 2022. We believe our cash on hand, availability under our new credit facility, and ongoing cash generated from our operations will be sufficient to fund our working capital requirements, our stock repurchase program and capital expenditures for the next 12 months. However,We believe that cash flows from operating activities and cash on hand will also be sufficient to satisfy our capital requirements in the longer-term, however, to the extent future capital requirements exceed cash on hand plus cash flows from operating activities, we remain cautiously optimistic regarding the duration of the pandemic and how it may continue to impactanticipate that working capital will be financed by our financial results and liquidity.credit facility, as discussed below.
For the first nine months of fiscal 2021,2022, cash flow from operations improveddecreased to $64.2$30.2 million as compared to $(8.6)$64.2 million for the first nine months of fiscal 2020 and $(14.4)2021. Free cash flow, a non-GAAP measure, decreased to $22.3 million for the first nine months of fiscal 2019. Free cash flow, a non-GAAP measure, improved2022 as compared to $61.3 million for the first nine months of fiscal 2021 as compared to $(11.6) million for the first nine months of fiscal 2020 and $(25.4) million for the first nine months of fiscal 2019.2021. The improvementdecrease in free cash flow was primarily due to our improvementpurposeful replenishment of inventory in earnings as well as faster inventory turnover.several categories that were depleted last year, the payout of incentive-based awards, and an increase in capital expenditures.
Cash flow used from financing activities for the first nine months of fiscal 2021 decreased2022 improved by $102.1$59.1 million as compared to the first nine months of fiscal 2020,2021, primarily due to the repayment in the prior year of amounts outstanding under our revolver, which includedcredit facility and the early repayment of our long-term debt. This was partially offset by the $30.0stock offering in February 2021 and the repurchase of our common stock, as discussed below, in the first nine months of fiscal 2022.
Stock Repurchase Program
In March 2022, the Company’s Board of Directors approved a stock repurchase program. Under the stock repurchase program, the Company may repurchase up to $15.0 million that we drew-downof its common stock through open market and privately negotiated transactions. For
22
the first nine months of fiscal 2022, the Company repurchased 2.9 million shares at an aggregate cost, including fees, of $12.7 million from available cash on our then existing Credit Facilityhand. There were no stock repurchases in the third quarter of fiscal 2022. Shares of repurchased common stock are held as treasury stock. The stock repurchase program will expire in March 2020 to provide the Company with financial flexibility during the pandemic as well as the prepayment of our $17.5 million FILO loan in September 2021.2023.
Credit Facility
On October 28, 2021, we entered into a new $125.0 million revolving credit agreement with a five-year term, which replaced our prior credit facility that was due to expire in May 2023 (the "New Credit"Credit Facility"). The New Credit Facility has a five-year term and provides more favorable terms than the previous credit facility. The New Credit Facility includes a sublimit of $20.0 million for commercial and standby letters of credit and a sublimit of up to $15.0 million for swingline loans. Borrowings made pursuant to the New Credit Facility will be made pursuant to either a Base Rate loan or LIBOR Rate loan, at the Company's option. Base Rate loans will bear interest, at a rate equal to (i) the greater of: (a) the Prime Rate, (b) the Federal Funds effective rate plus 0.50% per annum and (c) the daily LIBOR rate plus 1.00% per annum, plus (ii) a varying percentage, based on the Company’s average excess availability, of either 0.25% or 0.50%. LIBOR Rate loans, which may be either for 1 month or 3 months, will bear interest at (i) the LIBOR rate, or the Benchmark Rate as defined in the credit agreement plus (ii) a varying percentage based on the Company’s average excess availability, of either 1.25% or 1.50%.
We had no outstanding borrowings under the Newour Credit Facility at October 30, 2021.29, 2022 and no borrowings during the first nine months of fiscal 2022. At October 30, 2021,29, 2022, outstanding standby letters of credit were $2.7$3.8 million and outstanding documentary letters of credit of $1.2were $1.0 million. The average monthly borrowing outstanding under the Credit Facilityunused excess availability during the first nine months ended October 30, 2021of fiscal 2022 was approximately $21.8$82.0 million resulting in an averageand the unused excess availability of approximately $49.7 million. Unused excess availability at October 30, 202129, 2022 was $74.0$90.2 million.
FILO Loans
In March 2021, we refinanced our existing $15.0 million FILO loan (the “existing FILO loan”) and entered into a new $17.5 million FILO loan (the “new FILO loan”). The new FILO loan had higher advance rates, provided additional borrowing capacity of approximately $5.0 to $10.0 million, and carried an interest rate of 8.50%. The terms of the new FILO loan included a prepayment penalty, if any portion of the principal for the new FILO Loan was prepaid during the initial two-year period, equal to the greater of (i) the incremental interest that would have been incurred with respect to that principal repayment during the two year period and (ii) 3% of the principal prepayment, unless the prepayment occurs after March 16, 2022 in connection with the Company’s renegotiation of its Credit Agreement in which case the prepayment premium would be equal to 1% of the principal prepayment.
On September 3, 2021, we prepaid the outstanding balance of $17.5 million under the new FILO loan. In connection with the prepayment, we negotiated a reduced prepayment penalty of $1.1 million and wrote-off unamortized debt issuance costs of $0.8 million.
23
Capital Expenditures
The following table sets forth the open stores and related square footage at October 29, 2022 and October 30, 2021, October 31,respectively:
|
| October 29, 2022 |
|
| October 30, 2021 |
|
| ||||||||||
Store Concept |
| Number of |
|
| Square |
|
| Number of |
|
| Square |
|
| ||||
(square footage in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
DXL Retail |
|
| 218 |
|
|
| 1,664 |
|
|
| 220 |
|
|
| 1,678 |
|
|
DXL Outlets |
|
| 16 |
|
|
| 80 |
|
|
| 16 |
|
|
| 80 |
|
|
Casual Male XL Retail |
|
| 30 |
|
|
| 100 |
|
|
| 38 |
|
|
| 126 |
|
|
Casual Male Outlets |
|
| 19 |
|
|
| 57 |
|
|
| 20 |
|
|
| 60 |
|
|
Total Stores |
|
| 283 |
|
|
| 1,901 |
|
|
| 294 |
|
|
| 1,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our capital expenditures in fiscal 2021 and fiscal 2020 were very limited due to the pandemic. For fiscal 2022, we expect our capital expenditures will be approximately $10.0-$12.0 million as we make investments in technology related to our marketing and November 2, 2019, respectively:
|
| October 30, 2021 |
|
| October 31, 2020 |
|
| November 2, 2019 |
| |||||||||||||||
Store Concept |
| Number of |
|
| Square |
|
| Number of |
|
| Square |
|
| Number of |
|
| Square |
| ||||||
(square footage in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
DXL Retail |
|
| 220 |
|
|
| 1,678 |
|
|
| 227 |
|
|
| 1,724 |
|
|
| 229 |
|
|
| 1,736 |
|
DXL Outlets |
|
| 16 |
|
|
| 80 |
|
|
| 17 |
|
|
| 82 |
|
|
| 17 |
|
|
| 82 |
|
Casual Male XL Retail |
|
| 38 |
|
|
| 126 |
|
|
| 49 |
|
|
| 160 |
|
|
| 50 |
|
|
| 164 |
|
Casual Male Outlets |
|
| 20 |
|
|
| 60 |
|
|
| 23 |
|
|
| 69 |
|
|
| 28 |
|
|
| 84 |
|
Rochester Clothing |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2 |
|
|
| 21 |
|
Total Stores |
|
| 294 |
|
|
| 1,944 |
|
|
| 316 |
|
|
| 2,035 |
|
|
| 326 |
|
|
| 2,087 |
|
merchandising initiatives. We do not planare also actively pursuing opportunities to open any new storesrelocate or rebrand any ofconvert our remaining Casual Male XL stores during the remainder of fiscal 2021. We have 112to DXL stores that have leases with either a natural lease expiration or a kick-out option within the next two years. This provides us an opportunity to further evaluate our store portfolio, through ongoing lease renegotiations or lease-term expirations, to ensure that we are optimizing our store profitability and omni-channel distribution. Since the beginning of fiscal 2020, we have renegotiated approximately 155 of our store leases, which we expect will result in over $18.1 million of savings over the life of the leases, including $6.2 million of expected savingsmay require some capital investment in fiscal 2021.
Our capital expenditures for the first nine months of fiscal 2021 were $2.8 million as compared to $2.9 million for the first nine months of fiscal 2020.2022. During the first nine months of fiscal 2021,2022, we closed 6 DXL retail stores, 1 DXL outlet store, 85 Casual Male XL retail stores and 2 DXL retail stores.
We are also reviewing white space opportunities in markets where our store footprint is underpenetrated and relocation opportunities where we have an existing Casual Male XL outlets.store. We believe that our store portfolio is a vital asset to our business strategy and we expect to continue to invest in stores over the next several years as we further strengthen the store portfolio. Over the next three to five years, based on our preliminary store development plan, we believe that we could potentially open up to 50 new and relocated stores.
24
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes to the critical accounting policies and estimates disclosed in our Fiscal 20202021 Annual Report. See Note 1 to the Consolidated Financial Statements included in this report for information on recent accounting pronouncements and changes in accounting principles.
Non-GAAP Financial Measures
Free cash flow and Adjusted EBITDA are non-GAAP measures. These non-GAAP measures are not presented in accordance with GAAP and should not be considered superior to or as a substitute for net income (loss) or cash flows from operating activities or any other measure of performance derived in accordance with GAAP. In addition, all companies do not calculate non-GAAP financial measures in the same manner and, accordingly, the non-GAAP measures presented in this Quarterly Report may not be comparable to similar measures used by other companies. We believe that inclusion of these non-GAAP measures helps investors gain a better
23
understanding of our performance, especially when comparing such results to previous periods and that they are useful as an additional means for investors to evaluate our operating results, when reviewed in conjunction with our GAAP financial statements.
Reconciliations of these non-GAAP measures are presented in the following tables (certain columns may not foot due to rounding):
Free Cash Flow. We define free cash flow as cash flow from operating activities less capital expenditures. Free cash flow excludes the mandatory and discretionary repayment of debt. Free cash flow is a metric that management uses to monitor liquidity. We expect to fund our ongoing capital expenditures with cash flow from operations.
The following table reconciles free cash flow:
|
| For the nine months ended |
|
| For the nine months ended | ||||||||||||||||
(in millions) |
| October 30, 2021 |
|
| October 31, 2020 |
|
| November 2, 2019 |
|
| October 29, 2022 |
|
| October 30, 2021 |
|
| |||||
Cash flow from operating activities (GAAP basis) |
| $ | 64.2 |
| $ | (8.6 | ) |
| $ | (14.4 | ) |
| $ | 30.2 |
|
| $ | 64.2 |
|
| |
Capital expenditures |
|
| (2.8 | ) |
|
| (2.9 | ) |
|
| (11.0 | ) |
|
| (7.9 | ) |
|
| (2.8 | ) |
|
Free Cash Flow (non-GAAP basis) |
| $ | 61.3 |
| $ | (11.6 | ) |
| $ | (25.4 | ) |
| $ | 22.3 |
|
| $ | 61.3 |
|
|
Adjusted EBITDA. Adjusted EBITDA is calculated as earnings before interest, taxes, depreciation and amortization and is before any impairment of assets, CEO transition costs and exit costs associated with London operations, if any. We believe that adjusted EBITDA is useful to investors in evaluating our performance and is a key metric to measure profitability and economic productivity. The following table reconciles adjusted EBITDA from net income (loss):income:
|
| For the three months ended |
|
|
| For the nine months ended |
|
| For the three months ended |
| For the nine months ended | |||||||||||||||||||||||||||||||||
|
| October 30, 2021 |
| October 31, 2020 |
| November 2, 2019 |
|
|
| October 30, 2021 |
| October 31, 2020 |
| November 2, 2019 |
|
| October 29, 2022 |
|
| October 30, 2021 |
|
| October 29, 2022 |
|
| October 30, 2021 |
|
| ||||||||||||||||
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Net income (loss) (GAAP basis) |
| $ | 13.7 |
|
| $ | (7.0 | ) |
| $ | (7.2 | ) |
|
| $ | 46.8 |
|
| $ | (59.5 | ) |
| $ | (10.2 | ) | |||||||||||||||||||
Net income (GAAP basis) |
| $ | 10.5 |
|
| $ | 13.7 |
|
| $ | 80.8 |
|
| $ | 46.8 |
|
| |||||||||||||||||||||||||||
Add back: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Impairment of assets |
|
| (1.1 | ) |
|
| (1.1 | ) |
|
| - |
| - |
| (2.1 | ) |
|
| 15.2 |
|
|
| - |
| ||||||||||||||||||||
CEO transition costs |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| 0.7 |
| |||||||||||||||||||
Exit costs associated with London operations |
|
| - |
|
|
| - |
|
|
| 1.7 |
|
|
|
| - |
|
|
| - |
|
|
| 1.7 |
| |||||||||||||||||||
Impairment (gain) of assets |
|
| — |
|
|
| (1.1 | ) |
|
| (0.4 | ) |
|
| (2.1 | ) |
| |||||||||||||||||||||||||||
Provision (benefit) for income taxes |
|
| 0.1 |
|
|
| - |
|
|
| - |
|
|
|
| 0.5 |
|
|
| 0.1 |
|
|
| (0.1 | ) |
|
| 2.1 |
|
|
| 0.1 |
|
|
| (32.9 | ) |
|
| 0.5 |
|
| ||
Interest expense |
|
| 2.2 |
|
|
| 1.1 |
|
|
| 0.9 |
|
|
|
| 4.3 |
|
|
| 2.9 |
|
|
| 2.6 |
|
|
| 0.1 |
|
|
| 2.2 |
|
|
| 0.4 |
|
|
| 4.3 |
|
| ||
Depreciation and amortization |
|
| 4.1 |
|
|
| 5.3 |
|
|
| 6.3 |
|
|
|
| 13.0 |
|
|
| 16.4 |
|
|
| 18.9 |
|
|
| 3.8 |
|
|
| 4.1 |
|
|
| 11.7 |
|
|
| 13.0 |
|
| ||
Adjusted EBITDA (non-GAAP basis) |
| $ | 19.0 |
|
| $ | (1.7 | ) |
| $ | 1.7 |
|
|
| $ | 62.5 |
|
| $ | (24.9 | ) |
| $ | 13.6 |
|
| $ | 16.4 |
|
| $ | 19.0 |
|
| $ | 59.6 |
|
| $ | 62.5 |
|
|
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
In the normal course of business, our financial position and results of operations are routinely subject to a variety of risks, including market risk associated with interest rate movements on borrowings and foreign currency fluctuations. We regularly assess these risks and have established policies and business practices to protect against the adverse effects of these and other potential exposures.
Interest Rates
We utilize cash from operations and fromThere have not been any material changes to our Revolving Facilityinterest rate or foreign currency risks previously disclosed in Part II, Item 7A of our Credit Facility to fund our working capital needs. Our Credit Facility is not used for trading or speculative purposes. Until September 3,Fiscal 2021 we also had a $17.5 million FILO loan. In addition, we have available letters of credit as sources of financing for our working capital requirements. Borrowings under the new Credit Facility, which expires October 28, 2026, bear interest at variable rates based on the prime rate or LIBOR.Annual Report.
At October 30, 2021, we had no outstanding borrowings under our Credit Facility. The prime-based rate was 5.00% at October 30, 2021. Prior to the prepayment of the FILO loan, the interest rate was 8.50%.
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Based upon a sensitivity analysis as of October 30, 2021, assuming average outstanding borrowing during the first nine months of fiscal 2021 of $21.8 million under our Revolving Facility and an average outstanding balance for the FILO loan of approximately $13.5 million, a 50 basis point increase in interest rates would have resulted in a potential increase in interest expense of approximately $176,500 on an annualized basis.
Foreign Currency
Our DXL store located in Ontario, Canada conducts business in Canadian dollars. Sales from this store were immaterial to consolidated sales. As such, we believe that movement in foreign currency exchange rates will not have a material adverse effect on our financial position or results of operations.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of October 30, 2021.29, 2022. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of October 30, 2021,29, 2022, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
While the majority of our home office employees are workingcontinue to work remotely duringfor a portion of the COVID-19 pandemic,work week, we have not experienced any changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended October 30, 202129, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
We are subject to various legal proceedings and claims that arise in the ordinary course of business. Management currently believes that the resolution of these matters will not have a material adverse impact on our future results of operations or financial position.
Item 1A. Risk Factors.
There have been no material changes to the risk factors as previously disclosed in Part I, Item 1A of our Fiscal 20202021 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
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10.2 | ||
10.3 | ||
31.1 |
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31.2 | ||
32.1 | ||
32.2 | ||
101.INS | Inline XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
104 | Cover Page Interactive Data File – The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document. | |
* Filed herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| DESTINATION XL GROUP, INC. | ||
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Date: November |
| By: |
| /s/ John F. Cooney |
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| John F. Cooney |
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| Senior Vice President, |
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