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 July 30,29, 20222023
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 August 19, 2022,16, 2023, the registrant had 61,756,16760,389,665 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)
|
| July 30, 2022 |
|
| January 29, 2022 |
|
| July 29, 2023 |
|
| January 28, 2023 |
| ||||
|
| (Fiscal 2022) |
|
| (Fiscal 2021) |
|
| (Fiscal 2023) |
|
| (Fiscal 2022) |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 22,176 |
|
| $ | 15,506 |
|
| $ | 19,246 |
|
| $ | 52,074 |
|
Short-term investments |
|
| 43,536 |
|
|
| — |
| ||||||||
Accounts receivable |
|
| 1,450 |
|
|
| 2,110 |
|
|
| 884 |
|
|
| 1,720 |
|
Inventories |
|
| 96,728 |
|
|
| 81,764 |
|
|
| 87,532 |
|
|
| 93,004 |
|
Prepaid expenses and other current assets |
|
| 8,504 |
|
|
| 6,615 |
|
|
| 6,754 |
|
|
| 7,214 |
|
Total current assets |
|
| 128,858 |
|
|
| 105,995 |
|
|
| 157,952 |
|
|
| 154,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Non-current assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Property and equipment, net of accumulated depreciation and amortization |
|
| 39,763 |
|
|
| 44,442 |
|
|
| 35,397 |
|
|
| 39,062 |
|
Operating lease right-of-use assets |
|
| 127,443 |
|
|
| 127,812 |
|
|
| 132,930 |
|
|
| 124,356 |
|
Deferred income taxes, net of valuation allowance |
|
| 35,538 |
|
|
| — |
|
|
| 23,966 |
|
|
| 31,455 |
|
Intangible assets |
|
| 1,150 |
|
|
| 1,150 |
|
|
| 1,150 |
|
|
| 1,150 |
|
Other assets |
|
| 567 |
|
|
| 559 |
|
|
| 565 |
|
|
| 563 |
|
Total assets |
| $ | 333,319 |
|
| $ | 279,958 |
|
| $ | 351,960 |
|
| $ | 350,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts payable |
| $ | 27,962 |
|
| $ | 25,165 |
|
| $ | 20,899 |
|
| $ | 27,548 |
|
Accrued expenses and other current liabilities |
|
| 29,587 |
|
|
| 35,102 |
|
|
| 27,506 |
|
|
| 36,875 |
|
Operating leases, current |
|
| 37,114 |
|
|
| 35,191 |
|
|
| 37,727 |
|
|
| 37,329 |
|
Total current liabilities |
|
| 94,663 |
|
|
| 95,458 |
|
|
| 86,132 |
|
|
| 101,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Long-term liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating leases, non-current |
|
| 114,456 |
|
|
| 120,414 |
|
|
| 111,907 |
|
|
| 106,912 |
|
Other long-term liabilities |
|
| 6,505 |
|
|
| 5,867 |
|
|
| 3,821 |
|
|
| 4,706 |
|
Total long-term liabilities |
|
| 120,961 |
|
|
| 126,281 |
|
|
| 115,728 |
|
|
| 111,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Stockholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Preferred stock, $0.01 par value, 1,000,000 shares authorized, NaN issued |
|
| — |
|
|
| — |
| ||||||||
Common stock, $0.01 par value, 125,000,000 shares authorized, 77,359,687 and 77,025,419 shares issued at July 30, 2022 and January 29, 2022, respectively |
|
| 774 |
|
|
| 770 |
| ||||||||
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued |
|
| — |
|
|
| — |
| ||||||||
Common stock, $0.01 par value, 125,000,000 shares authorized, 78,605,837 and 78,229,861 shares issued at July 29, 2023 and January 28, 2023, respectively |
|
| 786 |
|
|
| 782 |
| ||||||||
Additional paid-in capital |
|
| 321,253 |
|
|
| 319,511 |
|
|
| 323,512 |
|
|
| 321,516 |
|
Treasury stock at cost, 15,625,172 shares and 12,755,873 shares at July 30, 2022 and January 29, 2022, respectively |
|
| (105,386 | ) |
|
| (92,658 | ) | ||||||||
Treasury stock at cost, 17,874,322 shares at July 29, 2023 and 15,625,172 shares at January 28, 2023 |
|
| (116,291 | ) |
|
| (105,386 | ) | ||||||||
Accumulated deficit |
|
| (93,549 | ) |
|
| (163,879 | ) |
|
| (56,156 | ) |
|
| (74,756 | ) |
Accumulated other comprehensive loss |
|
| (5,397 | ) |
|
| (5,525 | ) |
|
| (1,751 | ) |
|
| (4,928 | ) |
Total stockholders' equity |
|
| 117,695 |
|
|
| 58,219 |
|
|
| 150,100 |
|
|
| 137,228 |
|
Total liabilities and stockholders' equity |
| $ | 333,319 |
|
| $ | 279,958 |
|
| $ | 351,960 |
|
| $ | 350,598 |
|
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 Six Months Ended |
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||||||||||||
|
| July 30, 2022 |
|
| July 31, 2021 |
|
| July 30, 2022 |
|
| July 31, 2021 |
|
| July 29, 2023 |
|
| July 30, 2022 |
|
| July 29, 2023 |
|
| July 30, 2022 |
| ||||||||
|
| (Fiscal 2022) |
|
| (Fiscal 2021) |
|
| (Fiscal 2022) |
|
| (Fiscal 2021) |
|
| (Fiscal 2023) |
|
| (Fiscal 2022) |
|
| (Fiscal 2023) |
|
| (Fiscal 2022) |
| ||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Sales |
| $ | 144,634 |
|
| $ | 138,590 |
|
| $ | 272,289 |
|
| $ | 250,084 |
|
| $ | 140,043 |
|
| $ | 144,634 |
|
| $ | 265,485 |
|
| $ | 272,289 |
|
Cost of goods sold including occupancy costs |
|
| 69,316 |
|
|
| 66,988 |
|
|
| 133,104 |
|
|
| 127,649 |
|
|
| 69,664 |
|
|
| 69,316 |
|
|
| 134,190 |
|
|
| 133,104 |
|
Gross profit |
|
| 75,318 |
|
|
| 71,602 |
|
|
| 139,185 |
|
|
| 122,435 |
|
|
| 70,379 |
|
|
| 75,318 |
|
|
| 131,295 |
|
|
| 139,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Selling, general and administrative |
|
| 49,461 |
|
|
| 41,776 |
|
|
| 96,058 |
|
|
| 78,894 |
|
|
| 47,446 |
|
|
| 49,461 |
|
|
| 95,727 |
|
|
| 96,058 |
|
Impairment (gain) of assets |
|
| (47 | ) |
|
| (365 | ) |
|
| (398 | ) |
|
| (1,017 | ) |
|
| — |
|
|
| (47 | ) |
|
| — |
|
|
| (398 | ) |
Depreciation and amortization |
|
| 3,992 |
|
|
| 4,389 |
|
|
| 7,979 |
|
|
| 8,889 |
|
|
| 3,468 |
|
|
| 3,992 |
|
|
| 6,945 |
|
|
| 7,979 |
|
Total expenses |
|
| 53,406 |
|
|
| 45,800 |
|
|
| 103,639 |
|
|
| 86,766 |
|
|
| 50,914 |
|
|
| 53,406 |
|
|
| 102,672 |
|
|
| 103,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Operating income |
|
| 21,912 |
|
|
| 25,802 |
|
|
| 35,546 |
|
|
| 35,669 |
|
|
| 19,465 |
|
|
| 21,912 |
|
|
| 28,623 |
|
|
| 35,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Interest expense, net |
|
| (100 | ) |
|
| (925 | ) |
|
| (243 | ) |
|
| (2,067 | ) | ||||||||||||||||
Loss on termination of pension plan |
|
| (4,174 | ) |
|
| — |
|
|
| (4,174 | ) |
|
| — |
| ||||||||||||||||
Interest income (expense), net |
|
| 505 |
|
|
| (100 | ) |
|
| 844 |
|
|
| (243 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Income before provision (benefit) for income taxes |
|
| 21,812 |
|
|
| 24,877 |
|
|
| 35,303 |
|
|
| 33,602 |
|
|
| 15,796 |
|
|
| 21,812 |
|
|
| 25,293 |
|
|
| 35,303 |
|
Provision (benefit) for income taxes |
|
| (35,130 | ) |
|
| 426 |
|
|
| (35,027 | ) |
|
| 454 |
|
|
| 4,163 |
|
|
| (35,130 | ) |
|
| 6,693 |
|
|
| (35,027 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Net income |
| $ | 56,942 |
|
| $ | 24,451 |
|
| $ | 70,330 |
|
| $ | 33,148 |
|
| $ | 11,633 |
|
| $ | 56,942 |
|
| $ | 18,600 |
|
| $ | 70,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net income per share - basic |
| $ | 0.91 |
|
| $ | 0.38 |
|
| $ | 1.11 |
|
| $ | 0.53 |
|
| $ | 0.19 |
|
| $ | 0.91 |
|
| $ | 0.30 |
|
| $ | 1.11 |
|
Net income per share - diluted |
| $ | 0.85 |
|
| $ | 0.36 |
|
| $ | 1.04 |
|
| $ | 0.50 |
|
| $ | 0.18 |
|
| $ | 0.85 |
|
| $ | 0.28 |
|
| $ | 1.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Weighted-average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Basic |
|
| 62,688 |
|
|
| 63,527 |
|
|
| 63,384 |
|
|
| 62,840 |
|
|
| 61,977 |
|
|
| 62,688 |
|
|
| 62,334 |
|
|
| 63,384 |
|
Diluted |
|
| 66,670 |
|
|
| 67,615 |
|
|
| 67,519 |
|
|
| 65,938 |
|
|
| 65,449 |
|
|
| 66,670 |
|
|
| 65,829 |
|
|
| 67,519 |
|
The accompanying notes are an integral part of the consolidated financial statements.
3
DESTINATION XL GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
|
| For the Three Months Ended |
|
| For the Six Months Ended |
|
|
| For the Three Months Ended |
|
| For the Six Months Ended |
|
| ||||||||||||||||||||
|
| July 30, 2022 |
|
| July 31, 2021 |
|
| July 30, 2022 |
|
| July 31, 2021 |
|
|
| July 29, 2023 |
|
| July 30, 2022 |
|
| July 29, 2023 |
|
| July 30, 2022 |
|
| ||||||||
|
| (Fiscal 2022) |
|
| (Fiscal 2021) |
|
| (Fiscal 2022) |
|
| (Fiscal 2021) |
|
|
| (Fiscal 2023) |
|
| (Fiscal 2022) |
|
| (Fiscal 2023) |
|
| (Fiscal 2022) |
|
| ||||||||
Net income |
| $ | 56,942 |
|
| $ | 24,451 |
|
| $ | 70,330 |
|
| $ | 33,148 |
|
|
| $ | 11,633 |
|
| $ | 56,942 |
|
| $ | 18,600 |
|
| $ | 70,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Other comprehensive income before taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Foreign currency translation |
|
| (3 | ) |
|
| (17 | ) |
|
| (7 | ) |
|
| (42 | ) |
|
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| (7 | ) |
|
Pension plans |
|
| 68 |
|
|
| 78 |
|
|
| 135 |
|
|
| 156 |
|
|
|
| 65 |
|
|
| 68 |
|
|
| 131 |
|
|
| 135 |
|
|
Recognized loss on termination of pension plan |
|
| 4,174 |
|
|
| — |
|
|
| 4,174 |
|
|
| — |
|
| |||||||||||||||||
Other comprehensive income before taxes |
|
| 65 |
|
|
| 61 |
|
|
| 128 |
|
|
| 114 |
|
|
|
| 4,239 |
|
|
| 65 |
|
|
| 4,305 |
|
|
| 128 |
|
|
Tax provision related to items of other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| (1,111 | ) |
|
| — |
|
|
| (1,128 | ) |
|
| — |
|
|
Other comprehensive income, net of tax |
|
| 65 |
|
|
| 61 |
|
|
| 128 |
|
|
| 114 |
|
|
|
| 3,128 |
|
|
| 65 |
|
|
| 3,177 |
|
|
| 128 |
|
|
Comprehensive income |
| $ | 57,007 |
|
| $ | 24,512 |
|
| $ | 70,458 |
|
| $ | 33,262 |
|
|
| $ | 14,761 |
|
| $ | 57,007 |
|
| $ | 21,777 |
|
| $ | 70,458 |
|
|
The accompanying notes are an integral part of the consolidated financial statements.
4
DESTINATION XL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| ||||||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
| ||||||||
|
| Common Stock |
|
| Paid-in |
|
| Treasury Stock |
|
| Accumulated |
|
| Comprehensive |
|
|
|
| ||||||||||||||
|
| Shares |
|
| Amounts |
|
| Capital |
|
| Shares |
|
| Amounts |
|
| Deficit |
|
| 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| ||||||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
| ||||||||
|
| Common Stock |
|
| Paid-in |
|
| Treasury Stock |
|
| Accumulated |
|
| Comprehensive |
|
|
|
| ||||||||||||||
|
| Shares |
|
| Amounts |
|
| Capital |
|
| Shares |
|
| Amounts |
|
| Deficit |
|
| Loss |
|
| Total |
| ||||||||
Balance at January 28, 2023 |
|
| 78,230 |
|
| $ | 782 |
|
| $ | 321,516 |
|
|
| (15,625 | ) |
| $ | (105,386 | ) |
| $ | (74,756 | ) |
| $ | (4,928 | ) |
| $ | 137,228 |
|
Board of directors' compensation |
|
| 15 |
|
|
| — |
|
|
| 108 |
|
|
| — |
|
|
| — | �� |
|
| — |
|
|
| — |
|
|
| 108 |
|
Stock compensation expense |
|
| — |
|
|
| — |
|
|
| 404 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 404 |
|
Restricted stock units (RSUs) granted for achievement of performance-based |
|
| — |
|
|
| — |
|
|
| 1,146 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,146 |
|
Issuance of common stock, upon RSUs release |
|
| 251 |
|
|
| 3 |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Shares withheld for taxes related to net share settlement |
|
| (81 | ) |
|
| (1 | ) |
|
| (445 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (446 | ) |
Exercise of stock options |
|
| 81 |
|
|
| 1 |
|
|
| 215 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 216 |
|
Other comprehensive income, net of taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 49 |
|
|
| 49 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,967 |
|
|
| — |
|
|
| 6,967 |
|
Balance at April 29, 2023 |
|
| 78,496 |
|
| $ | 785 |
|
| $ | 322,941 |
|
|
| (15,625 | ) |
| $ | (105,386 | ) |
| $ | (67,789 | ) |
| $ | (4,879 | ) |
| $ | 145,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Board of directors' compensation |
|
| 25 |
|
|
| — |
|
|
| 112 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 112 |
|
Stock compensation expense |
|
| — |
|
|
| — |
|
|
| 411 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 411 |
|
Exercise of stock options |
|
| 85 |
|
|
| 1 |
|
|
| 48 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 49 |
|
Repurchase of common stock, including excise tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,249 | ) |
|
| (10,905 | ) |
|
| — |
|
|
| — |
|
|
| (10,905 | ) |
Other comprehensive income, net of taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,128 |
|
|
| 3,128 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,633 |
|
|
|
|
|
| 11,633 |
| |
Balance at July 29, 2023 |
|
| 78,606 |
|
| $ | 786 |
|
| $ | 323,512 |
|
|
| (17,874 | ) |
| $ | (116,291 | ) |
| $ | (56,156 | ) |
| $ | (1,751 | ) |
| $ | 150,100 |
|
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 |
|
| 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
|
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 | ) |
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 63 |
|
|
| 63 |
|
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 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,249 | ) |
|
| (10,813 | ) |
|
| — |
|
|
| — |
|
|
| (10,813 | ) |
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 65 |
|
|
| 65 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 56,942 |
|
|
| — |
|
|
| 56,942 |
|
Balance at July 30, 2022 |
|
| 77,360 |
|
| $ | 774 |
|
| $ | 321,253 |
|
|
| (15,951 | ) |
| $ | (108,318 | ) |
| $ | (93,549 | ) |
| $ | (5,397 | ) |
| $ | 114,763 |
|
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 Six Months Ended |
|
| For the Six Months Ended |
| ||||||||||
|
| July 30, 2022 |
|
| July 31, 2021 |
|
| July 29, 2023 |
|
| July 30, 2022 |
| ||||
|
| (Fiscal 2022) |
|
| (Fiscal 2021) |
|
| (Fiscal 2023) |
|
| (Fiscal 2022) |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 70,330 |
|
| $ | 33,148 |
|
| $ | 18,600 |
|
| $ | 70,330 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Amortization and write-off of deferred debt issuance costs |
|
| 38 |
|
|
| 328 |
| ||||||||
Amortization of deferred debt issuance costs |
|
| 38 |
|
|
| 38 |
| ||||||||
Impairment (gain) of assets |
|
| (398 | ) |
|
| (1,017 | ) |
|
| — |
|
|
| (398 | ) |
Loss on pension plan termination |
|
| 4,174 |
|
|
| — |
| ||||||||
Gain from the sale of equipment |
|
| (129 | ) |
|
| — |
| ||||||||
Depreciation and amortization |
|
| 7,979 |
|
|
| 8,889 |
|
|
| 6,945 |
|
|
| 7,979 |
|
Deferred taxes, net of valuation allowance |
|
| (35,538 | ) |
|
| — |
|
|
| 7,489 |
|
|
| (35,538 | ) |
Stock compensation expense |
|
| 752 |
|
|
| 643 |
|
|
| 815 |
|
|
| 752 |
|
Board of directors stock compensation |
|
| 251 |
|
|
| 219 |
| ||||||||
Board of directors' stock compensation |
|
| 220 |
|
|
| 251 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts receivable |
|
| 660 |
|
|
| 4,406 |
|
|
| 836 |
|
|
| 660 |
|
Inventories |
|
| (14,964 | ) |
|
| 11,660 |
|
|
| 5,472 |
|
|
| (14,964 | ) |
Prepaid expenses and other current assets |
|
| (1,889 | ) |
|
| (1,901 | ) |
|
| 460 |
|
|
| (1,889 | ) |
Other assets |
|
| (46 | ) |
|
| 34 |
|
|
| (40 | ) |
|
| (46 | ) |
Accounts payable |
|
| 2,797 |
|
|
| (7,214 | ) |
|
| (6,649 | ) |
|
| 2,797 |
|
Operating leases, net |
|
| (3,268 | ) |
|
| (9,781 | ) |
|
| (3,181 | ) |
|
| (3,268 | ) |
Accrued expenses and other liabilities |
|
| (2,855 | ) |
|
| 2,829 |
|
|
| (8,811 | ) |
|
| (2,855 | ) |
Net cash provided by operating activities |
|
| 23,849 |
|
|
| 42,243 |
|
|
| 26,239 |
|
|
| 23,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Additions to property and equipment, net |
|
| (4,056 | ) |
|
| (1,723 | ) |
|
| (4,665 | ) |
|
| (4,056 | ) |
Proceeds from sale of equipment |
|
| 129 |
|
|
| — |
| ||||||||
Purchase of short-term investments |
|
| (43,536 | ) |
|
| — |
| ||||||||
Net cash used for investing activities |
|
| (4,056 | ) |
|
| (1,723 | ) |
|
| (48,072 | ) |
|
| (4,056 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Repurchase of common stock |
|
| (12,728 | ) |
|
| — |
|
|
| (10,814 | ) |
|
| (12,728 | ) |
Proceeds from issuance of common stock from private direct offering, net of offering costs |
|
| — |
|
|
| 4,375 |
| ||||||||
Repayment of FILO loan |
|
| — |
|
|
| (15,000 | ) | ||||||||
Proceeds from new FILO loan |
|
| — |
|
|
| 17,500 |
| ||||||||
Net repayments under credit facility |
|
| — |
|
|
| (59,733 | ) | ||||||||
Debt issuance costs |
|
| — |
|
|
| (818 | ) | ||||||||
Tax withholdings paid related to net share settlements |
|
| (421 | ) |
|
| — |
|
|
| (446 | ) |
|
| (421 | ) |
Proceeds from the exercise of stock options |
|
| 26 |
|
|
| 4 |
|
|
| 265 |
|
|
| 26 |
|
Net cash used for financing activities |
|
| (13,123 | ) |
|
| (53,672 | ) |
|
| (10,995 | ) |
|
| (13,123 | ) |
Net increase (decrease) in cash and cash equivalents |
|
| 6,670 |
|
|
| (13,152 | ) |
|
| (32,828 | ) |
|
| 6,670 |
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Beginning of period |
|
| 15,506 |
|
|
| 18,997 |
|
|
| 52,074 |
|
|
| 15,506 |
|
End of period |
| $ | 22,176 |
|
| $ | 5,845 |
|
| $ | 19,246 |
|
| $ | 22,176 |
|
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 29, 202228, 2023 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 17, 2022.16, 2023.
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 20222023 is a 53-week period ending on February 3, 2024, and fiscal 2021 are2022 was a 52-week periods endingperiod which ended on January 28, 2023 and January 29, 2022, respectively.2023.
Segment Information
The Company has 2two principal operating segments: its stores and its direct 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 one reportable segment, retail segment, consistent with its omni-channel business approach.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in banks and short-term investments, which have a maturity of ninety days or less when acquired. Included in cash equivalents are credit card and debit card receivables from banks, which generally settle within two to four business days.
Short-Term Investments
Short-term investments consist of those investments that have a maturity date, when acquired, that is greater than three months and twelve months or less. These investments are classified as held-to-maturity and are carried at amortized cost, which approximates fair value due to the short period between purchase and maturity.
Concentration of Credit Risk
Cash and cash equivalents include amounts due from third party financial institutions, which from time to time, may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company’s wholesale business wasCompany is potentially exposed to a third operating segment. Inconcentration of credit risk when cash and cash equivalent deposits in these financial institutions are in excess of FDIC limits. The Company considers the first quarter of fiscal 2022, the Company ended its relationshipcredit risk associated with these financial instruments to be minimal as cash and cash equivalents are held by financial institutions with high credit ratings and it has not historically sustained any credit losses associated with its primary wholesale customer. Due tocash and cash equivalents balances. In addition, the immateriality of the wholesale segment’s revenues, profitsCompany's cash and assets, its operating results are aggregatedcash equivalents include money market accounts with the retail segment for all periods presented.Citizens Bank, N.A. and investments in U.S. government-backed securities held with Fidelity Investments.
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.
8
The valuation techniques utilized are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities.
The Company utilizes observable market inputs (quoted market prices) when measuring fair value whenever possible.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short maturity of these instruments. See Note 11 - Fair Value Measurement for information regarding the fair value of certain financial assets.
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 six months ended July 30, 202229, 2023 and July 31, 2021, respectively,30, 2022 were as follows:
|
| July 30, 2022 |
|
| July 31, 2021 |
|
| July 29, 2023 |
|
| July 30, 2022 |
| ||||||||||||||||||||||||||||||||||||
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 |
| $ | (5,399 | ) |
| $ | (63 | ) |
| $ | (5,462 | ) |
| $ | (6,146 | ) |
| $ | (22 | ) |
| $ | (6,168 | ) |
| $ | (4,879 | ) |
| $ | — |
|
| $ | (4,879 | ) |
| $ | (5,399 | ) |
| $ | (63 | ) |
| $ | (5,462 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Other comprehensive income (loss) before |
|
| 76 |
|
|
| (3 | ) |
|
| 73 |
|
|
| 90 |
|
|
| (17 | ) |
|
| 73 |
|
|
| 23 |
|
|
| — |
|
|
| 23 |
|
|
| 76 |
|
|
| (3 | ) |
|
| 73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Amounts reclassified from accumulated other |
|
| (8 | ) |
|
| — |
|
|
| (8 | ) |
|
| (12 | ) |
|
| — |
|
|
| (12 | ) | ||||||||||||||||||||||||
Recognition of loss on pension termination, net of taxes (1) |
|
| 3,080 |
|
|
| — |
|
|
| 3,080 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Amounts reclassified from accumulated other |
|
| 25 |
|
|
| — |
|
|
| 25 |
|
|
| (8 | ) |
|
| — |
|
|
| (8 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Other comprehensive income (loss) for the period |
|
| 68 |
|
|
| (3 | ) |
|
| 65 |
|
|
| 78 |
|
|
| (17 | ) |
|
| 61 |
|
|
| 3,128 |
|
|
| — |
|
|
| 3,128 |
|
|
| 68 |
|
|
| (3 | ) |
|
| 65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Balance at end of quarter |
| $ | (5,331 | ) |
| $ | (66 | ) |
| $ | (5,397 | ) |
| $ | (6,068 | ) |
| $ | (39 | ) |
| $ | (6,107 | ) |
| $ | (1,751 | ) |
| $ | — |
|
| $ | (1,751 | ) |
| $ | (5,331 | ) |
| $ | (66 | ) |
| $ | (5,397 | ) |
|
| July 30, 2022 |
|
| July 31, 2021 |
|
| July 29, 2023 |
|
| July 30, 2022 |
| ||||||||||||||||||||||||||||||||||||
For the six months ended: |
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Pension |
|
| Foreign |
|
| Total |
|
| Pension |
|
| Foreign |
|
| Total |
|
| Pension |
|
| Foreign |
|
| Total |
|
| Pension |
|
| Foreign |
|
| Total |
| ||||||||||||
Balance at beginning of fiscal year |
| $ | (5,466 | ) |
| $ | (59 | ) |
| $ | (5,525 | ) |
| $ | (6,224 | ) |
| $ | 3 |
|
| $ | (6,221 | ) |
| $ | (4,928 | ) |
| $ | — |
|
| $ | (4,928 | ) |
| $ | (5,466 | ) |
| $ | (59 | ) |
| $ | (5,525 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Other comprehensive income (loss) before |
|
| 155 |
|
|
| (7 | ) |
|
| 148 |
|
|
| 180 |
|
|
| (42 | ) |
|
| 138 |
|
|
| 29 |
|
|
| — |
|
|
| 29 |
|
|
| 155 |
|
|
| (7 | ) |
|
| 148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Amounts reclassified from accumulated other |
|
| (20 | ) |
|
| — |
|
|
| (20 | ) |
|
| (24 | ) |
|
| — |
|
|
| (24 | ) | ||||||||||||||||||||||||
Recognition of loss on pension termination, net of taxes (1) |
|
| 3,080 |
|
|
|
|
|
| 3,080 |
|
|
| — |
|
|
| — |
|
|
| — |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Amounts reclassified from accumulated other |
|
| 68 |
|
|
| — |
|
|
| 68 |
|
|
| (20 | ) |
|
| — |
|
|
| (20 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Other comprehensive income (loss) for the period |
|
| 135 |
|
|
| (7 | ) |
|
| 128 |
|
|
| 156 |
|
|
| (42 | ) |
|
| 114 |
|
|
| 3,177 |
|
|
| — |
|
|
| 3,177 |
|
|
| 135 |
|
|
| (7 | ) |
|
| 128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Balance at end of quarter |
| $ | (5,331 | ) |
| $ | (66 | ) |
| $ | (5,397 | ) |
| $ | (6,068 | ) |
| $ | (39 | ) |
| $ | (6,107 | ) |
| $ | (1,751 | ) |
| $ | — |
|
| $ | (1,751 | ) |
| $ | (5,331 | ) |
| $ | (66 | ) |
| $ | (5,397 | ) |
9
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 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 six months of fiscal 20222023 and fiscal 2021.2022.
|
| July 30, 2022 |
|
| July 31, 2021 |
| ||
Expected volatility |
| 109.0%-123.7% |
|
| 97.4% - 104.9% |
| ||
Risk-free interest rate |
| 2.52%-2.87% |
|
| 0.31% - 0.60% |
| ||
Expected term |
| 2.5-3.5 yrs. |
|
| 3.0 - 4.0 yrs. |
| ||
Dividend rate |
|
| — |
|
|
| — |
|
Weighted average fair value of options granted |
| $ | 4.98 |
|
| $ | 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 and the related stock compensation expense was fully expensed by the end of fiscal 2021.
|
| July 29, 2023 |
|
| July 30, 2022 |
| ||
Expected volatility |
| 86.3% - 92.1% |
|
| 109.0% - 123.7% |
| ||
Risk-free interest rate |
| 3.71%-4.42% |
|
| 2.52% - 2.87% |
| ||
Expected term |
| 2.5 yrs. |
|
| 2.5 - 3.5 yrs. |
| ||
Dividend rate |
|
| — |
|
|
| — |
|
Weighted average fair value of options granted |
| $ | 3.24 |
|
| $ | 4.98 |
|
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.
TheThere were no impairments or non-cash gains recognized in the three months and six months ended July 29, 2023. For the three months and six months ended July 30, 2022, the Company recognized non-cash gains of $0.1 million and $0.4 million, respectively, for the second quarter of fiscal 2022 and fiscal 2021 and non-cash gains of $0.6 million, and $1.1 million, respectively, for the first six months of fiscal 2022 and fiscal 2021respectively. 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 second quarter of fiscalthree months and six months ended July 30, 2022, and fiscal 2021, $0.1 million and $0.4 million, respectively, were included as an offset to asset impairment charges. For the first six months of fiscal 2022 and fiscal 2021, $0.4 million and $1.0 million, respectively, were included as an offset to asset impairment charges. The remaining gains for the second quarterthree months and first six months of fiscalended July 30, 2022 and fiscal 2021 were included as a reduction of store occupancy costs.
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
10
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 July 30, 2022,29, 2023, 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 storesstore leases with an initial term of 5 years, the Company evaluates each lease independently and, when the Company considers it reasonably certain that it will exercise an option to extend, 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 for the Company’s corporate headquarters and distribution center lease, which was entered into in 2006 and was for an initial 20-year
10
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, ‘‘"LeasesLeases"’’ for additional information.
Recently Issued Accounting Pronouncements - 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 was adopted in the first quarter of fiscal 2023, with the exception of the rollforward information, which is not effective until fiscal 2024. The adoption of ASU 2022-04 did not have a material effect on the Company's Consolidated Financial Statements as the Company does not participate in supplier finance programs.
NoRecently Issued Accounting Pronouncements - Not Yet Adopted
In July 2023, the FASB issued ASU 2023-03, Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock, which amends or supersedes various SEC paragraphs within the Accounting Standards Codification to conform to past SEC announcements and guidance issued by the SEC. The ASU does not provide any new guidance, and as such, there is no transition effective date. ASU 2023-03 is not expected to have a material impact on the Company's Consolidated Financial Statements.
There were no other new accounting pronouncements, issued or effective during the first six months of fiscal 2022, have2023, which 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.direct. 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.” 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 $2.3 million and $3.33.4 million at July 30, 202229, 2023 and January 29, 2022,28, 2023, respectively.
11
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 $1.1 million and $1.31.6 million at July 30, 202229, 2023 and at January 29, 2022, respectively.28, 2023.
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.
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. TheResults for the second quarter and first six months of fiscal 2022 included operating results from the wholesale segment, which were immaterial, have been aggregated with this reportable segment, butwas discontinued in the revenues are separately reported below.first quarter of fiscal 2022. 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 Six Months Ended |
|
|
|
| For the Three Months Ended |
|
| For the Six Months Ended |
|
|
| |||||||||||||||||||||||||||||||
(in thousands) | July 30, 2022 |
|
|
| July 31, 2021 |
|
|
|
| July 30, 2022 |
|
|
| July 31, 2021 |
|
|
|
| July 29, 2023 |
|
| July 30, 2022 |
|
|
| July 29, 2023 |
|
|
| July 30, 2022 |
|
|
| ||||||||||||||
Store sales | $ | 100,924 |
| 69.8 | % | $ | 99,043 |
| 71.9 | % |
| $ | 189,203 |
| 69.6 | % | $ | 173,923 |
| 70.7 | % |
| $ | 97,445 |
| 69.6% | $ | 100,924 |
| 69.8% |
| $ | 184,742 |
| 69.6 | % | $ | 189,203 |
| 69.6 | % | ||||||
Direct sales |
| 43,693 |
|
| 30.2 | % |
| 38,664 |
|
| 28.1 | % |
|
| 82,687 |
|
| 30.4 | % |
| 72,206 |
|
| 29.3 | % |
|
| 42,598 |
| 30.4% |
| 43,693 |
| 30.2% |
|
| 80,743 |
|
| 30.4 | % |
| 82,687 |
|
| 30.4 | % |
Retail segment | $ | 144,617 |
|
|
| $ | 137,707 |
|
|
| $ | 271,890 |
|
|
| $ | 246,129 |
|
|
|
| $ | 140,043 |
|
| $ | 144,617 |
|
|
| $ | 265,485 |
|
|
| $ | 271,890 |
|
|
| |||||||
Wholesale segment |
| 17 |
|
|
|
| 883 |
|
|
|
| 399 |
|
|
|
| 3,955 |
|
|
|
|
| — |
|
|
| 17 |
|
|
|
| — |
|
|
|
| 399 |
|
|
| |||||||
Total sales | $ | 144,634 |
|
|
| $ | 138,590 |
|
|
|
| $ | 272,289 |
|
|
| $ | 250,084 |
|
|
|
| $ | 140,043 |
|
| $ | 144,634 |
|
|
| $ | 265,485 |
|
|
| $ | 272,289 |
|
|
|
3. Debt
Credit Agreement with Citizens Bank, N.A.
On October 28, 2021, the Company entered into a credit facility with Citizens Bank, N.A. (theOn April 20, 2023, the Company entered into the First Amendment to Credit Agreement which provided for the replacement of the London Interbank Offering Rate (“LIBOR”) interest rate options with the secured overnight financing rate ("SOFR") based options (as amended, the "Credit Facility”Facility").
The Credit Facility isprovides for 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 letterletters of creditscredit 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.
As of April 20, 2023, Borrowings made pursuant toborrowings under the Credit Facility will be made pursuant tobear interest at either a Base Rate loan or LIBOR Rate loan,Daily Simple SOFR rate, 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 LIBORDaily Simple SOFR rate plus 1.00% per annum (provided the Base Rate shall never be less than the Floor (as defined in the Credit Facility)), plus (ii) a varying percentage, based on the Company’s average excess availability, of either 0.25% or 0.50% (the “Applicable Margin”). LIBOR RateDaily Simple SOFR 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 (i) the Daily Simple SOFR rate plus an adjustment of 0.10% (provided the Daily Simple SOFR rate shall never be less than the Floor), plus (ii) the Applicable Margin. Any swingline loan will continue to bear interest at a rate equal to the Base Rate loan, plus a varying percentage based on the Company’s average excess availability, of either 0.25% or 0.50%.Applicable Margin. The Company will beis subject to an unused line fee of 0.25%.
The Company’s obligations under the Credit Facility are secured by a lien on substantially all of its assets. If the Company’s availability under the 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.
At July 30, 2022,29, 2023, the Company had 0no borrowings outstanding under the revolving credit facilityCredit Facility and unused availability under the Credit Facility was $85.181.8 million. The Company had no borrowings during the first six months of fiscal 2022,2023, resulting in an average unused excess availability of approximately $79.985.6 million. Outstanding standby letters of credit were $2.44.0 million and outstanding documentary letters were $1.01.2 million at July 30, 2022.29, 2023. At July 30, 2022,29, 2023, the Company’s prime-based interest rate was 5.758.75%.
Borrowings and repayments for the first six months ended July 31, 2021 were as follows:
|
| For the six months ended |
| ||
(in thousands) |
|
| July 31, 2021 |
| |
Borrowings |
|
| $ | 33,696 |
|
Repayments |
|
|
| (93,429 | ) |
Net borrowings (repayments) |
|
| $ | (59,733 | ) |
Long-Term Debt
The Company had no outstanding long-term debt during the first six 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, which was subsequently repaid in full in September 2021.
The Company paid interest and fees totaling $0.1 million and $1.7 million for the six months ended July 30, 2022 and July 31, 2021, respectively.
4. Leases
The Company leases all of its store locations and its corporate headquarters, which also includes its distribution center, under 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 washeadquarters is for 20 years, with the opportunity to extend for 6six additional
12
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 July 30, 2022,29, 2023, 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 six months ended July 30, 202229, 2023 and July 31, 2021:30, 2022:
|
| For the three months ended |
| For the six months ended |
|
| For the three months ended |
| For the six months ended |
| ||||||||||||||||||||||
|
| July 30, 2022 |
| July 31, 2021 |
| July 30, 2022 |
| July 31, 2021 |
|
| July 29, 2023 |
| July 30, 2022 |
| July 29, 2023 |
| July 30, 2022 |
| ||||||||||||||
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Operating lease cost |
| $ | 10,744 |
|
| $ | 10,516 |
|
| $ | 21,758 |
|
| $ | 21,642 |
|
| $ | 11,374 |
|
| $ | 10,744 |
|
| $ | 22,041 |
|
| $ | 21,758 |
|
Variable lease costs(1) |
|
| 3,119 |
|
|
| 3,436 |
|
|
| 6,273 |
|
|
| 7,181 |
|
|
| 3,293 |
|
|
| 3,119 |
|
|
| 6,458 |
|
|
| 6,273 |
|
Total lease costs |
| $ | 13,863 |
|
| $ | 13,952 |
|
| $ | 28,031 |
|
| $ | 28,823 |
|
| $ | 14,667 |
|
| $ | 13,863 |
|
| $ | 28,499 |
|
| $ | 28,031 |
|
Supplemental cash flow and balance sheet information related to leases for the first six months ended July 29, 2023 and July 30, 2022 and July 31, 2021 iswas as follows:
|
|
|
|
|
|
|
|
|
|
| ||||||
(dollars in thousands) |
| For the six months ended |
|
| For the six months ended |
| ||||||||||
Cash paid for amounts included in the measurement of lease liabilities: |
| July 30, 2022 |
| July 31, 2021 |
|
| July 29, 2023 |
| July 30, 2022 |
| ||||||
Operating cash flows for operating leases (1) |
| $ | 28,281 |
|
| $ | 30,954 |
|
| $ | 24,513 |
|
| $ | 28,281 |
|
Non-cash operating activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Right-of-use assets obtained in exchange for operating lease liabilities |
| $ | 14,167 |
|
| $ | 4,749 |
|
| $ | 23,533 |
|
| $ | 14,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average remaining lease term |
| 4.4 yrs. |
| 4.3 yrs. |
|
| 4.4 yrs. |
| 4.4 yrs. |
| ||||||
Weighted average discount rate |
| 6.56% |
| 6.87% |
|
| 6.41% |
| 6.56% |
|
13
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 July 30, 2022:29, 2023:
(in thousands) |
|
|
| |
2022 (remaining) |
| $ | 21,146 |
|
2023 |
|
| 47,506 |
|
2024 |
|
| 38,912 |
|
2025 |
|
| 30,624 |
|
2026 |
|
| 18,252 |
|
Thereafter |
|
| 17,069 |
|
Total minimum lease payments |
| $ | 173,509 |
|
Less: amount of lease payments representing interest |
|
| 21,939 |
|
Present value of future minimum lease payments |
| $ | 151,570 |
|
Less: current obligations under leases |
|
| 37,114 |
|
Long-term lease obligations |
| $ | 114,456 |
|
(in thousands) |
|
|
| |
2023 (remaining) |
| $ | 21,518 |
|
2024 |
|
| 47,118 |
|
2025 |
|
| 38,081 |
|
2026 |
|
| 25,440 |
|
2027 |
|
| 17,863 |
|
Thereafter |
|
| 21,902 |
|
Total minimum lease payments |
| $ | 171,922 |
|
Less: amount of lease payments representing interest |
|
| 22,288 |
|
Present value of future minimum lease payments |
| $ | 149,634 |
|
Less: current obligations under leases |
|
| 37,727 |
|
Long-term lease obligations |
| $ | 111,907 |
|
As of July 29, 2023, the Company had entered into a ten-year store lease that has not yet commenced with aggregated estimated future lease payments of approximately $3.0 million, which are not included in the above table. The lease is expected to commence in the fall of 2023.
13
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.
The LTIPs are granted annually and each 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.
2019-20212020-2022 LTIP
The performance targets for the Company’s 2019-20212020-2022 LTIP were approved by the Compensation Committee of the Board of Directors (the "Compensation Committee”) on August 7, 2019June 11, 2020, and covered a three-year period performance period, which ended on January 29, 2022.28, 2023. The time-vested portion of the 2019-20212020-2022 LTIP vests in four annual installments, with the remaining installment vesting on April 1, 2023.2024.
In the first quarter of fiscal 2022, onOn March 21, 2022,6, 2023, the Compensation Committee approved a grant of awards equal to $141.92.8% payout of its performance targets million for the 2019-2021achievement of the performance target for the 2020-2022 LTIP. On that date,The awards were granted on March 23, 2023, following completion of the Company granted awards totaling $2.7 million,audited financial statements, in a combination of 50% cash and 50% restricted stock units (RSUs), which will vest, net of any forfeitures, on("RSUs"). All awards are subject to further vesting through August 31, 2022.2023. In connection with the grant of 269,162267,219 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 July 30, 2022,29, 2023, the Company had three active LTIPs: the 2020-20222021-2023 LTIP, the 2021-20232022-2024 LTIP and the 2022-20242023-2025 LTIP. The time-based awards under the 2020-2022 LTIP were granted in a combination of 50% stock options and 50% cash; the 2021-2023 LTIP time-based awards were granted in a combination of 25% stock options and 75% cash;cash, and the time-based awards under the 2022-2024 LTIP time-based awardsand the 2023-2025 LTIP were granted in a combination of 50% RSUs and 50% cash.
Performance targets for the 2020-2022 LTIP, 2021-2023 LTIP, and 2022-2024 LTIP and the 2023-2025 LITP were established and approved by the Compensation Committee on June 11, 2020, March 8, 2021, and April 9, 2022 and May 1, 2023, 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 an additional vestingservice requirement through August 31, 2023,2024, August 31, 20242025 and August 31, 2025,2026, respectively. The time-based awards under the 2020-2022 LTIP, 2021-2023 LTIP, 2022-2024 LTIP and 2022-20242023-2025 LTIP vest in four equal installments through April 1, 2024,2025, April 1, 20252026 and April 1, 2026,2027, respectively. Assuming that the Company achieves the performance targets at target levels and all time-based awards vest, the compensation expense associated with the 2020-2022 LTIP, 2021-2023 LTIP, 2022-2024 LTIP and 2022-20242023-2025 LTIP is estimated to be approximately $3.84.1 million, $4.04.7 million and $4.54.9 million, respectively. Approximately half of the compensation expense for each LTIP relates to the time-based awards, which are being expensed straight-line over 4649 months, 4948 months and 48 47months, respectively.
At July 30, 2022,29, 2023, the Company had accrued $1.9 million under the 2020-2022 LTIP, $1.22.0 million under the 2021-2023 LTIP and $0.21.4 million under the 2022-2024 LTIP for the performance awards. At July 29, 2023, the Company had no accrual for the performance-based awards under the 2023-2025 LTIP.
14
6. Stock-Based Compensation
The Company has one active stock-based compensation plan: the 2016 Incentive Compensation Plan (the(as amended, 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 July 30, 2022,29, 2023, the Company had 3,825,0953,374,231 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 July 30, 2022,29, 2023, 298,23190,487 stock options remained outstanding under the 2006 Plan.
14
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 six months of fiscal 2022:2023:
|
| RSUs (1) |
|
| Deferred |
|
| Performance |
|
| Fully-Vested |
|
| Total number |
|
| Weighted- |
|
| RSUs (1) |
|
| Deferred |
|
| Performance |
|
| Fully-Vested |
|
| Total number |
|
| Weighted- |
| ||||||||||||
Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Outstanding non-vested shares at beginning of year |
|
| 515,291 |
|
|
| 435,568 |
|
|
| 240,000 |
|
|
| — |
|
|
| 1,190,859 |
|
| $ | 1.57 |
|
|
| 520,008 |
|
|
| 435,568 |
|
|
| 240,000 |
|
|
| — |
|
|
| 1,195,576 |
|
| $ | 2.51 |
|
Shares granted |
|
| 496,467 |
|
|
| — |
|
|
| — |
|
|
| 17,532 |
|
|
| 513,999 |
|
| $ | 4.98 |
|
|
| 547,294 |
|
|
| — |
|
|
| — |
|
|
| 11,924 |
|
|
| 559,218 |
|
| $ | 4.79 |
|
Shares vested and/or issued |
|
| (318,657 | ) |
|
| — |
|
|
| — |
|
|
| (17,532 | ) |
|
| (336,189 | ) |
| $ | 2.35 |
|
|
| (251,053 | ) |
|
| — |
|
|
| — |
|
|
| (11,924 | ) |
|
| (262,977 | ) |
| $ | 2.76 |
|
Shares expired |
|
| — |
|
|
| — |
|
|
| (240,000 | ) |
|
| — |
|
|
| (240,000 | ) |
| $ | 1.07 |
| ||||||||||||||||||||||||
Shares forfeited |
|
| (2,604 | ) |
|
|
|
|
|
|
|
|
|
|
| (2,604 | ) |
| $ | 5.02 |
|
|
| (50,612 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (50,612 | ) |
| $ | 7.35 |
| |||
Outstanding non-vested shares at end of quarter |
|
| 690,497 |
|
|
| 435,568 |
|
|
| 240,000 |
|
|
| — |
|
|
| 1,366,065 |
|
| $ | 2.66 |
|
|
| 765,637 |
|
|
| 435,568 |
|
|
| — |
|
|
| — |
|
|
| 1,201,205 |
|
| $ | 3.60 |
|
|
| Number of |
|
| Weighted- |
|
| Weighted- |
|
| Aggregate |
|
| Number of |
|
| Weighted- |
|
| Weighted- |
|
| Aggregate |
| ||||||||
Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Outstanding options at beginning of year |
|
| 4,621,550 |
|
| $ | 0.90 |
|
| 8.2 years |
|
| $ | 16,066,914 |
|
|
| 3,556,434 |
|
| $ | 0.83 |
|
| 7.4 years |
|
| $ | 23,238,665 |
| ||
Options granted |
|
| 3,640 |
|
| $ | 4.70 |
|
|
| — |
|
|
| — |
|
|
| 1,317 |
|
| $ | 5.91 |
|
|
| — |
|
|
| — |
|
Options exercised |
|
| (48,019 | ) |
| $ | 0.54 |
|
|
|
|
|
| 211,710 |
|
|
| (165,878 | ) |
| $ | 1.60 |
|
|
|
|
|
| 567,537 |
| ||
Options expired and canceled |
|
| (19,269 | ) |
| $ | 0.63 |
|
|
| — |
|
|
| 66,641 |
|
|
| (31,007 | ) |
| $ | 3.95 |
|
|
| — |
|
|
| 49,037 |
|
Outstanding options at end of quarter |
|
| 4,557,902 |
|
| $ | 0.91 |
|
| 7.6 years |
|
| $ | 15,006,017 |
|
|
| 3,360,866 |
|
| $ | 0.76 |
|
| 6.9 years |
|
| $ | 14,904,397 |
| ||
Options exercisable at end of quarter |
|
| 1,969,767 |
|
| $ | 1.30 |
|
| 6.8 years |
|
| $ | 5,881,812 |
|
|
| 2,102,251 |
|
| $ | 0.81 |
|
| 6.8 years |
|
| $ | 9,216,556 |
|
15
For the first six months of fiscal 2023, the Company granted stock options to purchase an aggregate of
1,317 shares of common stock, 547,294 restricted stock units and 11,924 fully-vested shares. For the first six months of fiscal 2022, the Company granted stock options to purchase an aggregate of 3,640 shares of common stock, 496,467 restricted stock units and 17,532 fully-vested shares. For
Subsequent to the first six monthsend of the second quarter of fiscal 2021,2023, on August 11, 2023, in connection with the extension of Mr. Kanter's employment agreement, the Company granted stock options573,000 PSUs to purchase an aggregateMr. Kanter. The award consists of nine tranches, with the first tranche vesting if and when the 1,518,15430-day sharesvolume-weighted closing price of the Company's common stock and is equal to or greater than $8,0546.50 restrictedper share. Each subsequent tranche will vest in $0.25 increments with the ninth tranche vesting when the 30-day volume-weighted closing price of the Company common stock units.is equal to or greater than $8.50 per share. The PSUs are subject to a one-year minimum vesting period, and any unvested PSUs will expire on August 11, 2026.
Non-Employee Director Compensation Plan
The Company granted 36,69028,349 shares of common stock, with a fair value of approximately $169,482159,357, to certain of its non-employee directors as compensation in lieu of cash in the first six months of fiscal 2022.2023. 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.
15
Stock Compensation Expense
The Company recognized total stock-based compensation expense of $0.8 million and $0.6 million for the first six months of both fiscal 20222023 and fiscal 2021, respectively.2022. The total compensation cost related to time-vested stock options and RSU awards not yet recognized as of July 30, 202229, 2023 was approximately $2.12.5 million, net of estimated forfeitures, which will be expensed over a weighted average remaining life of 3234 months.
7. Equity and Earnings per Share
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 six months ended |
|
| For the three months ended |
|
| For the six months ended |
| ||||||||||||||||||||
|
| July 30, 2022 |
|
| July 31, 2021 |
|
| July 30, 2022 |
|
| July 31, 2021 |
|
| July 29, 2023 |
|
| July 30, 2022 |
|
| July 29, 2023 |
|
| July 30, 2022 |
| ||||||||
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Common stock outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Basic weighted average common shares outstanding |
|
| 62,688 |
|
|
| 63,527 |
|
|
| 63,384 |
|
|
| 62,840 |
|
|
| 61,977 |
|
|
| 62,688 |
|
|
| 62,334 |
|
|
| 63,384 |
|
Common stock equivalents – stock options, restricted stock units and deferred stock |
|
| 3,982 |
|
|
| 4,088 |
|
|
| 4,135 |
|
|
| 3,098 |
|
|
| 3,472 |
|
|
| 3,982 |
|
|
| 3,495 |
|
|
| 4,135 |
|
Diluted weighted average common shares outstanding |
|
| 66,670 |
|
|
| 67,615 |
|
|
| 67,519 |
|
|
| 65,938 |
|
|
| 65,449 |
|
|
| 66,670 |
|
|
| 65,829 |
|
|
| 67,519 |
|
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 or restricted stock units or deferred stock had an anti-dilutive effect.
|
| For the three months ended |
|
| For the six months ended |
|
| For the three months ended |
|
| For the six months ended |
| ||||||||||||||||||||
|
| July 30, 2022 |
|
| July 31, 2021 |
|
| July 30, 2022 |
|
| July 31, 2021 |
|
| July 29, 2023 |
|
| July 30, 2022 |
|
| July 29, 2023 |
|
| July 30, 2022 |
| ||||||||
(in thousands, except exercise prices) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Stock options |
|
| 306 |
|
|
| 409 |
|
|
| 306 |
|
|
| 424 |
|
|
| 100 |
|
|
| 306 |
|
|
| 100 |
|
|
| 306 |
|
Restricted stock units |
|
| 490 |
|
|
| — |
|
|
| 488 |
|
|
| — |
|
|
| 179 |
|
|
| 490 |
|
|
| 24 |
|
|
| 488 |
|
Range of exercise prices of such options |
| $4.48-$5.50 |
| $4.49 - $5.50 |
|
| $4.48 - $5.50 |
| $2.25 - $5.50 |
|
| $4.48-$6.59 |
| $4.48 - $5.50 |
|
| $4.48 - $6.59 |
| $4.48 - $5.50 |
|
The above options, which were outstanding at July 30, 2022,29, 2023, expire from January 31, 202329, 2024 to June 12, 2032March 20, 2033.
ExcludedDeferred stock of 435,568 shares at July 29, 2023 and at July 30, 2022 was excluded from the computation of basic and diluted earnings per share were 240,000 shares for the second quarter and first six months of fiscal 2022 and 720,000 shares for the second quarter and first six months of fiscal 2021 of unvested performance stock units. These performance-based awards 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 of deferred stock at July 30, 2022 and at July 31, 2021 were excluded from basic earnings per share. Outstanding sharesShares of deferred stock are not considered issued and outstanding until the vesting date of the deferral period.
8. Stock Repurchase Program
On March 15, 2022,14, 2023, the Company’sCompany's Board of Directors approved a stock repurchase program.program, effective March 16, 2023. Under the stock repurchase program, the Company mayis authorized to repurchase up to $15.0 million of its common stock, including excise tax, 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, 202316, 2024, but may be suspended, terminated or modified at any time for any reason. The Company expects to finance the repurchases from operating funds and/or periodic borrowings on its credit facility.cash generated from operations.
ForDuring the first six monthssecond quarter of fiscal 2022,2023, the Company repurchased 2.92.2 million shares at an aggregate cost of $12.710.8 million, including fees, from available cashexcluding excise taxes. The Inflation Reduction Act of 2022 imposed a nondeductible 1% excise tax on hand. Sharesthe net value of certain share repurchases made after December 31, 2022. Beginning in fiscal year 2023, the applicable excise tax is being charged to additional paid-in capital in the Company's Consolidated Balance Sheet as part of the cost basis of the shares repurchased, common stock are held as treasury stock.with the corresponding liability for the excise tax payable recorded in accrued expenses and other current liabilities. This liability is partially offset by a 1% credit permitted under the rules for the fair value of shares issued by the Company. For the six months ended July 29, 2023, the Company has accrued $0.1 million for the payment of excise taxes.
9. Income Taxes
Since the end of fiscal 2013, the Company has maintained a full valuation allowance against its deferred tax assets. DuringIn the second quarter of fiscal 2022, the Company determined that it was more likely than not that it would be able to realize the benefitbenefits 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,Accordingly, in the second quarter of fiscal 2022, the Company recognized a discrete tax benefit related to the releasereleased substantially all of approximately $35.5 million in valuation allowance against its deferred tax assets invaluation allowance. As a result of the United States that are expected to be realized in future years. At July 30, 2022,valuation allowance being released, the Company continuedreturned to provide a valuation allowancenormal tax provision for fiscal 2023.
For the second quarter and first six months of $fiscal 2023, the Company’s effective tax rate was 2.426.4 million primarily against certain state% and foreign net operating losses ("NOLs").26.5%, respectively.
During the second quarter and first six months of fiscal 2022, the Company recorded an income tax benefit of $35.1 million and $35.0 million, respectively. Excluding the release of $35.5 million in valuation allowance, the Company recorded income tax expense of $408,000 and $511,000, respectively, primarily related to income tax in states where NOL usage iswas statutorily limited.
During16
The Company made tax payments of $0.3 million for the second quarter and first six months of fiscal 2021,2023, and no tax payments for the first six months of fiscal 2022.
10. Termination of Noncontributory Pension Plan
In connection with the acquisition of Casual Male Corp. in May 2002, the Company recorded income tax expenseassumed the assets and liabilities of $426,000 and $454,000the Casual Male Noncontributory Pension Plan “Casual Male Corp. Retirement Plan”, respectively, primarily related to income tax in states where NOL usage is statutorily limited.which was previously known as the J. Baker, Inc. Qualified Plan (the “Pension Plan”). Casual Male Corp. froze all future benefits under this plan on May 1, 1997.
For federal income tax purposes,
On May 3, 2023, the Audit Committee approved the termination of the Pension Plan, which was then approved and ratified by the Board of Directors on May 4, 2023 with a final termination approval on June 8, 2023. On July 1, 2023, the Company completed a partial settlement through the purchase of nonparticipating annuities. The Company made a cash contribution during the first six months of fiscal 2023 of $1.6 million. The remaining pension liability, net of plan assets, at July 29, 2023 is approximately $0.2 million. The remaining plan assets are invested in short-term investments and cash equivalents.
In the second quarter of fiscal 2023, the Company recognized a charge of $4.2 million, representing a pro-rata portion of the unrealized loss in "Accumulated Other Comprehensive Loss" on the Consolidated Balance Sheet. The Company expects to settle the remaining obligation and terminate the Pension Plan by the end of fiscal 2021,2023, at which time the Company had net operatingwill recognize the remaining unrealized loss carryforwardsthat is part of approximately $"Accumulated Other Comprehensive Loss."100.7
Net periodic pension cost for the three and six months ended July 29, 2023 and July 30, 2022 was as follows:
|
| For the three months ended |
|
| For the six months ended |
| ||||||||||
|
| July 29, 2023 |
|
| July 30. 2022 |
|
| July 29, 2023 |
|
| July 30. 2022 |
| ||||
Net periodic pension cost: |
| (in thousands) |
| |||||||||||||
Interest cost on projected benefit obligation |
| $ | 129 |
|
| $ | 102 |
|
| $ | 261 |
|
| $ | 207 |
|
Expected return on plan assets |
|
| (160 | ) |
|
| (178 | ) |
|
| (300 | ) |
|
| (362 | ) |
Amortization of unrecognized loss |
|
| 65 |
|
|
| 68 |
|
|
| 131 |
|
|
| 135 |
|
Loss on pension plan termination |
|
| 4,174 |
|
|
| — |
|
|
| 4,174 |
|
|
| — |
|
Net periodic pension cost (income) |
| $ | 4,208 |
|
| $ | (8 | ) |
| $ | 4,266 |
|
| $ | (20 | ) |
Assumptions used were as follows:
|
| For the six months ended |
|
| |||||
|
| July 29, 2023 |
|
| July 30. 2022 |
|
| ||
Discount rate |
|
| 5.2 | % |
|
| 3.0 | % |
|
Expected return on plan assets |
|
| 5.1 | % |
|
| 6.5 | % |
|
11 million, which will expire from fiscal. Fair Value Measurement
2028 through fiscal 2037,At July 29, 2023 and net operating loss carryforwards of $43.1 million that are not subject to expiration. For state purposes, at the end of fiscal 2021,January 28, 2023, the Company had $90.0held U.S. treasury bills which were classified as held-to maturity and carried at amortized cost.
million of net operating losses that are available to offset future taxable income, the majority of which will expire from fiscal 2028
|
|
|
| Fair Value |
| ||||||||||
(in thousands) | Carrying value |
|
| Quoted Prices |
|
| Significant |
|
| Significant Unobservable |
| ||||
At July 29, 2023: |
|
|
|
|
|
|
|
|
|
|
| ||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury Bills |
| 5,058 |
|
|
| 5,061 |
|
|
| — |
|
|
| — |
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury Bills |
| 43,536 |
|
|
| 43,513 |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
At January 28, 2023 |
|
|
|
|
|
|
|
|
|
|
| ||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury Bills |
| 29,076 |
|
|
| 29,071 |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
through fiscal 2041.
17
18
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 our expectationslong-range strategic growth plan and our ability to achieve accelerated growth in the future; the expected impact of our strategic initiatives, including with respect to sales trends,raising brand awareness, store development and future alliances and collaborations; expected marketing costs, gross margin rate, improved inventory levels, our ability to realize our deferred tax assetsrates and our ability to secure sufficient inventory to meet customer demand, increased freight costs, increases in certain raw materials cost, our long-term outlook, expected capital expenditures in 2022,2023; expected timing of stock repurchases under our ability to attract new customers,board-approved stock repurchase program; and our plans with respect toexpected changes in our store portfolio including anticipated closures, re-brandings, and long-term plans for new andor 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 29, 2022,28, 2023, included in our Annual Report on Form 10-K for the year ended January 29, 2022,28, 2023, as filed with the Securities and Exchange Commission on March 17, 202216, 2023 (our “Fiscal 20212022 Annual Report”).
Numerous factors could cause our actual results to differ materially from such forward-looking statements. 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 related to labor shortages, increased labor costs,inflationary pressures, changes in consumer spending in response to economic factors, increased labor costs and potential labor shortages, the economy, the ongoing effects of the COVID-19 pandemic, thecontinuing economic impact of the war inRussian invasion of Ukraine, our ability to navigate supply chain uncertainties, our ability to maintainmanage appropriate inventory levels, our ability to successfully execute on our corporate strategy,strategic initiatives, our ability to predict customer tastes and fashion trends, our ability to grow market share, our ability to forecast sales growth trends and compete in the market, and the other risks and uncertainties set forth in the “Risk Factors” section in Part I, Item 1A of our Fiscal 20212022 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 and direct operations in the United States. We operate under the trade names of Destination XL®, DXL®, DXL Outlets, Casual Male XL® and Casual Male XL Outlets. At July 30, 2022,29, 2023, we operated 218219 Destination XL stores, 16 DXL outlet stores, 3127 Casual Male XL retail stores, 19 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 February 3, 2024, January 28, 2023 and January 29, 2022 and January 30, 2021 as "fiscal 2023", “fiscal 2022,” and “fiscal 2021” respectively. Fiscal 2023 is a 53-week period and “fiscal 2020,” respectively. All three fiscal years are2022 and fiscal 2021 were 52-week periods.
SEGMENT REPORTING
We currently have two principal operating segments: our stores and direct 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
18
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
19
online and pick-up in a store and at curbside. We define store sales as sales that originate and are fulfilled directly at the store level. Digital 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,is temporarily closed for more than 7 days, it is also removed from the calculation of comparable sales.sales until it reopens and upon its anniversary is once again removed from the calculation until the reopen date. 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.
RESULTS OF OPERATIONS
EXECUTIVE SUMMARY
|
| For the three months ended | For the six months ended | ||||||||||||||
|
| July 29, 2023 |
|
| July 30, 2022 |
|
| July 29, 2023 |
|
| July 30, 2022 |
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| ||||
(in millions, except percentage of sales and per share data) |
|
|
|
|
|
|
|
|
|
|
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|
| ||||
Sales |
| $ | 140.0 |
|
| $ | 144.6 |
|
| $ | 265.5 |
|
| $ | 272.3 |
|
|
Net income |
| $ | 11.6 |
|
| $ | 56.9 |
|
| $ | 18.6 |
|
| $ | 70.3 |
|
|
Adjusted net income (Non-GAAP basis) |
| $ | 14.8 |
|
| $ | 16.1 |
|
| $ | 21.8 |
|
| $ | 25.8 |
|
|
Adjusted EBITDA (Non-GAAP basis) |
| $ | 22.9 |
|
| $ | 25.9 |
|
| $ | 35.6 |
|
| $ | 43.1 |
|
|
|
|
|
|
|
|
|
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|
|
|
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|
| ||||
Gross margin. as a percentage of sales |
|
| 50.3 | % |
|
| 52.1 | % |
|
| 49.5 | % |
|
| 51.1 | % |
|
SG&A expenses, as a percentage of sales |
|
| 33.9 | % |
|
| 34.2 | % |
|
| 36.1 | % |
|
| 35.3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
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| ||||
Per diluted share: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 0.18 |
|
| $ | 0.85 |
|
| $ | 0.28 |
|
| $ | 1.04 |
|
|
Adjusted net income (Non-GAAP basis) |
| $ | 0.23 |
|
| $ | 0.24 |
|
| $ | 0.33 |
|
| $ | 0.38 |
|
|
Our comparable sales for the second quarter of fiscal 2023 decreased 1.4%, our first decrease since the fourth quarter of fiscal 2020, as we compared against a strong prior year second quarter. During the second quarter, we saw a decrease in dollars per transaction, a reflection of the continuing economic headwinds. However, traffic improved as the quarter progressed, resulting in a positive comp of 1.0% in July. Despite the pressure on top-line growth, we continue to proactively manage our inventory and operating costs, which has resulted in a strong adjusted EBITDA margin (a non-GAAP measure) for the quarter of 16.4%. While we saw improvement at the end of the second quarter, traffic has slowed during the first few weeks of the third quarter, up against a strong prior year, with comparable sales trending down in the mid-single digits.
Executive Summary
|
| For the three months ended |
| For the six months ended | ||||||||||||||
|
| July 30, 2022 |
|
| July 31, 2021 |
|
|
| July 30, 2022 |
|
| July 31, 2021 |
|
| ||||
(in millions, except percentage of sales and per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Sales |
| $ | 144.6 |
|
| $ | 138.6 |
|
|
| $ | 272.3 |
|
| $ | 250.1 |
|
|
Net income |
| $ | 56.9 |
|
| $ | 24.5 |
|
|
| $ | 70.3 |
|
| $ | 33.1 |
|
|
Adjusted EBITDA (Non-GAAP basis) |
| $ | 25.9 |
|
| $ | 29.8 |
|
|
| $ | 43.1 |
|
| $ | 43.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross Margin. as a percentage of sales |
|
| 52.1 | % |
|
| 51.7 | % |
|
|
| 51.1 | % |
|
| 49.0 | % |
|
SG&A expenses, as a percentage of sales |
|
| 34.2 | % |
|
| 30.1 | % |
|
|
| 35.3 | % |
|
| 31.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Per diluted share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 0.85 |
|
| $ | 0.36 |
|
|
| $ | 1.04 |
|
| $ | 0.50 |
|
|
We are pleased to report continued earnings and sales growth thisIn the second quarter with results exceedingof fiscal 2023, our internal expectations. Comparable sales increased 6.1% forBoard approved the quarter, with increases across alltermination of our customer channels, driven by higher average order values, our digital transformation, and our brand repositioning. Regionally, all partsfrozen, noncontributory pension plan. Given the current high interest rates, we saw this as an opportunistic use of the country performed above their pre-pandemic levels,excess cash to eliminate this variable liability. In connection with the largest gainsthat decision, during the second quarter, in New England and Florida, while partswe completed a partial settlement of our pension obligations through the purchase of nonparticipating annuities. As a result, during the second quarter of fiscal 2023, we recognized a loss of $4.2 million, representing a pro-rata portion of the Midwest lagged. Dollars per transaction wasunrealized loss in Accumulated Other Comprehensive Loss. We expect to complete the primary drivertermination of our sales increase and was attributable to our reduced reliance on promotions, a historically low-levelthe pension plan by the end of clearance inventory and a shift in merchandise mix to higher-price items, such as tailored clothing. Our gross margin ratefiscal 2023.
Net income for the second quarter also benefited from the low promotions and clearance enabling usof fiscal 2023 was $11.6 million, or $0.18 per diluted share, as compared to substantially offset the increase in freight and shipping costs that we continue to experience. In line with our expectations, our selling, general and administrative expenses (SG&A) increased by 410 basis points duringnet income of $56.9 million, or $0.85 per diluted share, for the second quarter primarily due to increased payroll costs to support sales, marketing costs, and accruals for performance-based incentive plans. Our marketing costsof fiscal 2022. Net income for the second quarter of fiscal 2022 represented approximately 170 basis points of this increase. Our marketing plan for fiscal 2022 is 6.2% of sales, which in total is an increase of 150 basis points from fiscal 2021.
During the second quarter of fiscal 2022, we determined that it was more likely than not that we would be able to realize substantially all of our deferred tax assets primarily due to the cumulative three-years of earnings as well as projections for future earnings. As a result, we recorded a non-cash tax benefit of $35.5 million, related toincluded the release of substantially all of the valuation allowance against our deferred tax assets.
Net income Assuming a normalized tax rate and adjusting for the second quarter was $56.9 million, or $0.85 per diluted shareloss from the pension plan termination and includedasset impairments (gains), if any, on a tax benefit of $35.5 million, or $0.53 per diluted share, related to the release of the tax valuation allowance. Netnon-GAAP basis, net income for the second quarter of fiscal 20212023 was $24.5$14.8 million, or $0.36$0.23 per diluted share.share, as compared to adjusted net income of $16.1 million, or $0.24 per diluted share, for the second quarter of fiscal 2022.
At July 30, 2022, we had no debt outstanding and we did not make any borrowings under our credit facility during the first six months. Our unused excess availability at July 30, 2022 was $85.1 million. At the end of the second quarter, we are in a strong inventory position and have been able to replenish those categories that were depleted at the end of the second quarter last year. As a result, our inventory level at the end of the second quarter is intentionally up 31.8% from last year, but compared to the end of the second quarter in fiscal 2019 inventory is down 12.7%. In addition, we have improved our inventory turn by almost 40% from fiscal 2019.
As we previously disclosed, the Company's Board of Directors approved a $15.0 million stock repurchase program in March 2022 and, duringFor the first six months of fiscal 2022, we utilized our free cash flow2023, net income was $18.6 million, or $0.28 per diluted share, as compared to repurchase 2.9net income of $70.3 million, sharesor $1.04 per diluted share, for the first six months of our common stock, at an aggregate costfiscal 2022. Adjusted net income for the first six months of $12.7fiscal 2023, was $21.8 million, including fees.or $0.33 per diluted share, as compared to net income of $25.8 million, or $0.38 per diluted share, for the first six months of fiscal 2022.
19As of July 29, 2023, we had cash and investments of $62.8 million as compared to $22.2 million at July 30, 2022. As of July 29, 2023, we had no debt outstanding, unused excess availability of $81.8 million, and no borrowings during the quarter. Our inventory was in a healthy position at quarter-end, down 9.5% as compared to July 30, 2022. Inventory turnover, as of July 29, 2023, has improved over 28% from fiscal 2019 levels. With cash on hand, no outstanding debt and full availability under our credit facility, we are continuing to pursue our strategic initiatives this year to grow our business.
WhileAs discussed below, during the second quarter of fiscal 2023, we believe our long-term outlook is strong,repurchased 2.2 million shares at a total cost, including fees of $10.8 million, within the current retail environment remains highly volatile, with inflation, rising interest rates, supply chain issues, labor and staffing challenges, the ongoing global pandemic, as well as the war in Ukraine.Board's authorized $15.0 million share repurchase.
Financial SummaryOur Future Growth Strategy
20
Our Company is in a fundamentally different position today than it was pre-pandemic. We have achieved a heightened level of operational excellence, recapitalized our balance sheet to provide a greater level of financial flexibility, made investments in our technical capabilities, and upgraded our leadership team. As we look beyond fiscal 2023, we are excited about our long-term growth plan. Our goal is to meaningfully accelerate the trajectory of the Company over the next three to five years, by focusing on three specific growth initiatives: brand-building, store development, and alliances/collaborations.
Marketing and Brand-Building: We believe one of our greatest opportunities is to address our overall brand awareness levels. Over the past few years, we have transformed our brand position and differentiated ourselves in terms of experience, fit, and assortment. However, many of our target consumers simply do not know DXL. We now have the financial flexibility, informed consumer research, and the right messaging to invest in building our brand. For the past several years, our advertising-to-sales ratio has been between 5.0% to 6.0%. Our plan is to increase our advertising-to-sales ratio over the next few years. We expect over the next few years to invest more in brand building and top-of-funnel marketing to grow our customer file.
Store Development: As we have stated before, we believe there are at least 50 net new store opportunities. New store development addresses another factor critical to our growth. While we have stores in every major metro market across the United States, there are voids in certain markets where big & tall consumers are not being serviced by a DXL. In our most recent research across 2,500 big + tall men, both customers and non-customers, 49% self-reported that they do not shop with us because a store is not near them, while 37% self-reported that they do not shop with us because a store location is not convenient. This year, we expect to open our first three new stores since fiscal 2018, with plans to open another 10 new stores in fiscal 2024 and 15 to 20 new stores in fiscal 2025.
Alliances/Collaborations: We strongly believe that our "fit authority" is one of our biggest assets and that we can develop successful collaborations with other brands, who are interested in finding a cost-effective way to expand their offering to include big & tall men's apparel. In September, we will be launching Untuckit, Fit by DXL in partnership with Untuckit to be sold exclusively by DXL. In addition, we also are adding Hugo Boss and Faherty to our list of national brands this Fall, each with a level of merchandise exclusivity that cannot be found elsewhere. We believe these examples are only the beginning, and we are working in real-time on additional retail brand alliances. Lastly, we also launched our new fit technology and size mapping in two of our stores, with plans to expand to an additional 10 stores by the end of the month.
RESULTS OF OPERATIONS
Sales
The following table presents sales by segment for the three and six months ended July 30, 202229, 2023 and July 31, 2021:30, 2022:
| For the Three Months Ended |
|
|
| For the Six Months Ended |
|
|
|
| For the Three Months Ended |
|
| For the Six Months Ended |
|
|
| |||||||||||||||||||||||||||||||
(in thousands) | July 30, 2022 |
|
|
| July 31, 2021 |
|
|
|
| July 30, 2022 |
|
|
| July 31, 2021 |
|
|
|
| July 29, 2023 |
|
| July 30, 2022 |
|
|
| July 29, 2023 |
|
|
| July 30, 2022 |
|
|
| ||||||||||||||
Store sales | $ | 100,924 |
| 69.8 | % | $ | 99,043 |
| 71.9 | % |
| $ | 189,203 |
| 69.6 | % | $ | 173,923 |
| 70.7 | % |
| $ | 97,445 |
| 69.6% | $ | 100,924 |
| 69.8% |
| $ | 184,742 |
| 69.6 | % | $ | 189,203 |
| 69.6 | % | ||||||
Direct sales |
| 43,693 |
|
| 30.2 | % |
| 38,664 |
|
| 28.1 | % |
|
| 82,687 |
|
| 30.4 | % |
| 72,206 |
|
| 29.3 | % |
|
| 42,598 |
| 30.4% |
| 43,693 |
| 30.2% |
|
| 80,743 |
|
| 30.4 | % |
| 82,687 |
|
| 30.4 | % |
Retail segment | $ | 144,617 |
|
|
| $ | 137,707 |
|
|
| $ | 271,890 |
|
|
| $ | 246,129 |
|
|
|
| $ | 140,043 |
|
| $ | 144,617 |
|
|
| $ | 265,485 |
|
|
| $ | 271,890 |
|
|
| |||||||
Wholesale segment |
| 17 |
|
|
|
| 883 |
|
|
|
| 399 |
|
|
|
| 3,955 |
|
|
|
|
| — |
|
|
| 17 |
|
|
|
| — |
|
|
|
| 399 |
|
|
| |||||||
Total sales | $ | 144,634 |
|
|
| $ | 138,590 |
|
|
|
| $ | 272,289 |
|
|
| $ | 250,084 |
|
|
|
| $ | 140,043 |
|
| $ | 144,634 |
|
|
| $ | 265,485 |
|
|
| $ | 272,289 |
|
|
|
Total sales for the second quarter of fiscal 20222023 were $144.6$140.0 million, as compared to $138.6$144.6 million in the second quarter of fiscal 2021.2022. Comparable sales for the second quarter were up 6.1%decreased 1.4% with comparable sales from our stores up 3.6%down 1.4% and our direct business down 1.3%. The remainder of the decrease was due to sales from closed stores and a decrease in non-comparable sales.
During the quarter, we saw a decrease in dollars per transaction, which we believe was the result of inflationary pressures impacting customer spending. These decreases were partially offset by an increase in conversion. Despite these headwinds, during the quarter we saw comparable sales improve each month, with May down 2.8%, June down 1.7% and July up 12.7%1.0%. Both stores and our direct business improved throughout the quarter, driven largely by improvement in traffic to our stores and growth in our mobile app and email marketing.
Sales for the second quarter exceeded our plan, driven primarily by an increase in dollars per transaction. This increase is attributable to a combination of factors, including less markdowns from fewer promotions, deeper penetration in high-ticket categories such as tailored clothing, less clearance inventory available for sale and, to a lesser extent, targeted price increases. The growth in our direct business of 12.7% was driven by our web and app with continued growth from online marketplaces. Through our digital efforts and marketplace presence, we are continuing to attract a new customer to DXL.
Compared to the second quarter of fiscal 2019, the last normalized selling year, our comparable sales for the second quarter of fiscal 2022 were up 32.6% in May, up 27.8% in June, and up 27.6% in July. We believe the comparison to fiscal 2019 is relevant when evaluating our sales performance given the impact of the pandemic on the past two years. We expect to see a fairly similar comparable sales trend in the second half of fiscal 2022 as compared to fiscal 2019, and we expect comparable sales growth, against fiscal 2021, to be in the low to mid-single digits during the third quarter and high-single digits during the fourth quarter. During the second quarter of fiscal 2022, comparable sales were up 14.0% in May, up 3.6% in June and up 1.1% in July, when compared against fiscal 2021.
For the first six months of fiscal 2022, total sales increased 8.9% to $272.32023 were $265.5 million as compared to $250.1$272.3 million for the first six months of fiscal 2021.2022. Comparable sales for the first six months of fiscal 2022, as compared to fiscal 2021, increased 12.0%2023 decreased 0.5%, with comparable sales from our stores up 11.0%flat to the prior year period and our direct business up 14.6%down 1.5%.
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 six months of fiscal 2022 were $0.4 million as compared to $4.0 million for the first six months of fiscal 2021.
Gross Margin Rate
For the second quarter of fiscal 2022,2023, our gross margin rate, inclusive of occupancy costs, was 52.1%50.3% as compared to a gross margin rate of 51.7%52.1% for the second quarter of fiscal 2021.2022.
Our gross margin rate improveddecreased by 40 basis180-basis points, driven bywith a 50 basis point improvement in occupancy cost offset by a 10 basis point decrease in merchandise marginsmargin of 110-basis points and an increase of 70-basis points in occupancy costs primarily due to the deleveraging of sales and increased rents as a result of lease extensions. The
21
decrease in merchandise margin of 110-basis points was due to continued cost pressures on certain private-label merchandise, much of which we continued to absorb rather than passing on to the customer through price increases. We also experienced increased shipping costs related to direct-to-consumer shipments and costs related to our loyalty program with more sales tendered with loyalty certificates, as compared to the second quarter of fiscal 2021. The 50 basis point improvement in occupancy costs was due to the increased leverage from sales as well as a decrease of approximately $0.1 million in occupancy costs from closed stores. The 10 basis point decrease in merchandise margin was due to an increase in both inbound and outbound shipping costs of approximately 180 basis points, mostly2022. These cost increases were partially offset by lower promotional markdowns. Weinbound freight costs. For the year, we expect that we will continue to experience an increase in freight costs and in the cost of certain raw materials, particularly cotton. Although at the beginning of fiscal 2022, we reported that we expected our gross margin rates to be 200approximately 100-basis points lower than fiscal 2021, we now expect that our gross margin rate for the full fiscal year will be approximately flat to fiscal 2021 based on our current expectations.2022.
For the first six months of fiscal 2022,2023, our gross margin rate, inclusive of occupancy costs, was 51.1%,49.5% as compared to a gross margin rate of 49.0%51.1% for the first six months of fiscal 2021.2022. The increasedecrease of 210 basis160-basis points was due to an improvement of 130 basis points in occupancy costs, due to the increased leverage from sales, and an increasea decrease in merchandise margins of 80 basis110-basis points due primarilyand a 50-basis point increase in occupancy costs. Similar to the lower promotional markdowns partially offset bysecond quarter merchandise margin, the increase in freightdecrease was due to cost pressures on certain private-label merchandise, increased direct-to-consumer shipping costs and shipping costs.costs related to our loyalty program.
20
Selling, General and Administrative Expenses
As a percentage of sales, SG&A (selling, general and administrative) expenses for the second quarter of fiscal 20222023 were 34.2%33.9% as compared to 30.1%34.2% for the second quarter of fiscal 2021. The2022. For the first six months of fiscal 2023, SG&A rate for the second 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, our SG&A rateexpenses, as a percentage of sales, is favorable whenwere 36.1% as compared against 38.5% into 35.3% for the second quarterfirst six months of fiscal 2019, which was our last normalized second quarter, pre-pandemic.2022.
On a dollar basis, SG&A expenses increaseddecreased by $7.7$2.0 million and $0.3 million for the second quarter and first six months of fiscal 2023, respectively as compared to the second quarter of fiscal 2021. 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 second quarter of fiscal 2022 represented 5.4% of sales as compared to 3.7% in the second quarter of fiscal 2021. For fiscal 2022, the Company is expecting marketing costs to be approximately 6.2% of sales.
For the first six months of fiscal 2022, SG&A expenses2022. The decreases were 35.3% of sales as comparedprimarily due to 31.5% of sales for the first six months of fiscal 2021. Similar to the second quarter, the prior year rate was abnormally low. When compared against the first six months of fiscal 2019 when the rate was 39.0% of sales, the savings that we have been able to realizea decrease in our SG&A costs is evident. As compared to the first six months of fiscal 2021, SG&A costs increased $17.2 million, or 21.8%, as a result of increasedperformance-based incentive accruals and marketing costs, payroll costs to support sales growth, first quarter merit adjustments, filling open positions andpartially offset by an increase in performance-based incentive accruals.payroll-related costs from new positions added in the past year to support our long-range growth initiatives.
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 20.3% of sales in the first six months of fiscal 2023 as compared to 19.8% of sales in the first six months of fiscal 2022 as compared to 17.4% of sales in the first six months of fiscal 2021.2022. Corporate Support Costs, which include the distribution center and corporate overhead costs, represented 15.8% of sales in the first six months of fiscal 2023 as compared to 15.5% of sales in the first six months of fiscal 2022 compared to 14.1% of sales in2022. Marketing costs for the first six months were 5.3% of sales for both fiscal 2021.2023 and fiscal 2022. For fiscal 2023, marketing costs are expected to be approximately 5.7% of sales.
Impairment (Gain) of Assets
There were no impairments or non-cash gains recognized in the first six months of fiscal 2023. During the second quarter and first six months of fiscal 2022, and fiscal 2021, the Companywe recorded non-cash gains of $0.1 million and $0.4 million, respectively, and for the first six months of fiscal 2022 and fiscal 2021, the Company recorded non-cash gains of $0.6 million and $1.1 million, respectively, onrelated to the reduction of itsour operating lease liability in connection with itsour decision to close certain retail stores, which resulted in a revaluation of the lease liability. OfThe portion of the total non-cash gains,gain that related to a previously recorded impairment charge against the operating lease right-of-use asset was included as an offset to previously recorded asset impairment charge. Accordingly, $0.1 million and $0.4 million for the second quarter of fiscal 2022 and fiscal 2021, respectively, and $0.4 million and $1.0 million for the first six months of fiscal 2022 and fiscal 2021 respectively, related to leases where the right-of-use assets had previously been impaired, and therefore, were recorded as a reduction of the previously-recorded impairment and were included in the Impairment (Gain) of Assets line of the Consolidated Statement of Operations for the three months ended July 30, 2022second quarter and July 31, 2021. The remaining gains of $0.2 million and $0.1 million for the first six months of fiscal 2022 and fiscal 2021 were2022. The remaining gain was recorded as a reduction to occupancy costs in each period.costs.
Depreciation and Amortization
Depreciation and amortization for the second quarter of fiscal 20222023 decreased to $4.0$3.5 million as compared to $4.4$4.0 million for the second quarter of fiscal 2021.2022. For the first six months of fiscal 2022,2023, depreciation and amortization decreased to $8.0$6.9 million as compared to $8.9$8.0 million for the first six months of fiscal 2021.2022. The decrease was due to a lower depreciable cost base, especially from our store assets, due to our limited capital spending since fiscal 2020.
Loss from Termination of Pension Plan
During the second quarter of fiscal 2023, we identified an opportunity to eliminate a variable liability by taking advantage of the current high-interest rate environment and terminating the frozen pension plan. We completed a partial settlement of the pension obligation in the second quarter through the purchase of nonparticipating annuities. We made a cash contribution to the plan during the first six months of fiscal 2023 of $1.6 million. The remaining pension liability as of July 29, 2023, was approximately $0.2 million. In the second quarter of fiscal 2023, we recognized a charge of $4.2 million, representing a pro-rata portion of the unrealized loss that is part of accumulated other comprehensive loss on the balance sheet. We expect to settle the remaining obligation, recognize the remaining unrealized loss and terminate the plan by the end of fiscal 2023.
Interest Income/Expense, Net
Interest expenseNet interest income for the second quarter of fiscal 20222023 was $0.1$0.5 million, as compared to $0.9net interest expense of $0.1 million for the second quarter of fiscal 2021.2022. For the first six months of fiscal 2022,2023, net interest expenseincome was $0.2$0.8 million as compared to $2.1net interest expense of $0.2 million for the first six months of fiscal 2021. The Company had no outstanding debt and no borrowings under its credit facility during2022. For the second quarter and first six months of fiscal 2023, interest income was earned from investments in U.S. government-backed investments and money market accounts. Interest costs for both periods were minimal because we had no outstanding debt and no borrowings under our credit facility during either period.
22
Income Taxes
As a result of releasing substantially all of the valuation allowance against our deferred tax assets during fiscal 2022, resulting inwe have returned to a decrease in interest expense as compared tonormal tax provision for fiscal 2023. Accordingly, for the second quarter and first six months of fiscal 2021.
Income Taxes
Since2023, the end of fiscal 2013, we have maintained a full valuation allowance against our deferredeffective tax assets. During the second quarter of fiscal 2022, we determined that itrate 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 business26.4% 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 July 30, 2022, we continued to provide a valuation allowance of $2.4 million, primarily against certain state and foreign net operating losses ("NOLs").
21
During the second quarter and first six months of fiscal 2022, we recorded an income tax benefit of $35.1 million and $35.0 million,26.5%, respectively. Excluding the release of $35.5 million in valuation allowance, we recorded income tax expense of $408,000 and $511,000, respectively, primarily related to income tax in states where NOL usage is statutorily limited.
During the second quarter and first six months of fiscal 2021, we recorded income tax expense of $426,000 and $454,000, respectively, primarily related to income tax in states where NOL usage is statutorily limited.
Net Income
For the second quarter and first six months of fiscal 2022, we recognized a tax benefit of $35.1 million and $35.0 million, respectively, which reflects the release of approximately $35.5 million, or $0.53 per diluted share, in valuation allowance against our deferred tax assets, partially offset by income tax expense of $0.4 million and $0.5 million, respectively, in states where our usage of net operating losses ("NOL") is limited.
We are able to utilize our remaining NOL carryforwards to reduce our cash federal and state income taxes. We began the year with $78.9 million in federal NOL carryforwards.
Net Income
For the second quarter of fiscal 2023, we recorded net income of $11.6 million, or $0.18 per diluted share, as compared to net income of $56.9 million, or $0.85 per diluted share, andfor the second quarter of fiscal 2022. Net income for the first six months of fiscal 2023 was $18.6 million, or $0.28 per diluted share, as compared to net income of $70.3 million, or $1.04 per diluted share respectively. Results for the second quarter and first six months of fiscal 2022 include2022.
On a non-cashnon-GAAP basis, assuming a normalized tax benefitrate of $35.526% and adjusting for asset impairments (gains), if any, and for the loss on the termination of the pension plan, adjusted net income for the second quarter of fiscal 2023 was $14.8 million, or $0.53$0.23 per diluted share, relatedas compared to the releaseadjusted net income of substantially all of the Company's valuation allowance against its deferred tax assets.
For$16.1 million, or $0.24 per diluted share for the second quarter andof fiscal 2022. For the first six months of fiscal 20212023, adjusted net income was $24.5$21.8 million, or $0.36$0.33 per diluted share, and $33.1as compared to adjusted net income of $25.8 million, or $0.50$0.38 per diluted share, respectively.share.
Inventory
As of July 30, 2022,29, 2023, our inventory increaseddecreased by approximately $23.4$9.2 million to $96.7$87.5 million, as compared to $73.4$96.7 million at July 31, 2021. We are in a stronger inventory position at July 30, 2022 than at the end of the second quarter last year. This increase was purposeful in order to replenish several categories that were depleted last year. Compared to the second quarter of fiscal 2019, our inventory is down 12.7%.2022. Managing our inventory remains a primary focus for us given the potential impact that inflation mayappears to have had on consumer spending. We believe thatBased on the sales trends we will be ablestarted to secure sufficient inventory to supportsee in March 2023, we took proactive measures and adjusted our sales forecasts for fiscal 2022 while also ensuring that we don't have excess inventory levels.receipt plan. At July 30, 2022,29, 2023, our clearance inventory was 6.9%9.3% of our total inventory, as compared to 8.9%6.9% at July 31, 202130, 2022 and 10.9% at August 3, 2019.still below our historical benchmark of approximately 10.0%.
SEASONALITY
Historically, and consistent with the retail industry, we have experienced seasonal fluctuations as it relates to our operating income, net income, and net income.free cash flow. Traditionally, a significant portion of our operating income, and net income, and free cash flow is generated in the second and fourth quarters. Our inventory is typically at peak levels by the end of the third quarter, which represents a significant use of cash, which is then relieved in the fourth quarter as a result ofwe sell-down our inventory through the “Holiday”holiday shopping season.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are our cash and cash equivalents, short-term investments, cash generated from operations and availability under our credit facility.facility, which is discussed below. At July 30, 2022,29, 2023, we had no outstanding debt, including no borrowings under our credit facility during the first six months of fiscal 2022. 2023. Cash that is in excess of our forecasted needs may be invested in money market accounts and U.S. government-backed securities.
We believe that our cash on hand, availabilityand cash equivalent balances, short-term investments, cash generated from operations, and borrowings available to us under our credit facility and ongoing cash generated from our operations will be sufficientadequate to fundmeet our working capital requirements, our stock repurchase programliquidity needs and capital expendituresexpenditure requirements for at least the next 12 months. However, we remain cautious regarding the effect that the current macroeconomic conditions, including inflation and rising interest costs, may have on consumer spending as well as the continuing geopolitical impact of Russia's invasion of Ukraine on our business and the global economy. We also 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 anticipate that working capital will be financed by our credit facility, as discussed below.
For the first six months of fiscal 2022,2023, cash flow from operations decreasedincreased to $23.8$26.2 million as compared to $42.2$23.8 million for the first six months of fiscal 2021.2022. Free cash flow, a non-GAAP measure, decreasedincreased to $21.6 million for the first six months of fiscal 2023 as compared to $19.8 million for the first six months of fiscal 20222022. The increase in free cash flow was primarily due to a decrease in merchandise purchases as comparedwe continue to $40.5proactively manage inventory levels.
Cash flow used for investing activities increased by $44.0 million for the first six months of fiscal 2021. The decrease in free cash flow was2023 as compared to the first six months of fiscal 2022, primarily due to our seasonal inventory build, the payoutpurchase of incentive-based awards, and an increase in capital expenditures, which were partially offset by our increased earnings.$43.5 million of short-term investments.
23
Cash flow used fromfor financing activities for the first six months of fiscal 2022 improved2023 decreased by $40.5$2.1 million as compared to the first six months of fiscal 2021,2022, primarily due to a decrease in shares repurchased as compared to the repayment in the prior year of amounts outstanding under our revolver. This was partially offset by the stock offering in February 2021 and the repurchase of our common stock, as discussed below, in the first six monthssecond quarter of fiscal 2022.
Stock Repurchase Program
In March 2022,2023, 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 of its common stock through open market and privately negotiated transactions. ForDuring the first six monthssecond quarter of fiscal 2022, the Company2023, we repurchased 2.92.2 million shares at an aggregatea total cost, including fees of $12.7 million
22
from available cash on hand.$10.8 million. Shares of repurchased common stock are held as treasury stock. The timing and the amount of any remaining repurchases will be determined based on the Company’s evaluation of market conditions and other factors. The stock repurchase program will expire inon March 2023.16, 2024 and may be suspended, terminated or modified at any time for any reason.
Credit Facility
On October 28, 2021, we entered into a $125.0 million revolving credit agreement with Citizens Bank, N.A., with a maturity date of October 28, 2026. On April 20, 2023, the Company entered into the First Amendment to Credit Agreement which replaced our prior credit facility that was due to expire in May 2023 (theprovided for the replacement of the London Interbank Offering Rate (“LIBOR”) interest rate options with the secured overnight financing rate ("SOFR") based options (as amended, the "Credit Facility"). The Credit Facility has a five-year term and provides more favorable terms than the previous credit facility. The 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 toApril 20, 2023, borrowings under the Credit Facility will be made pursuant tobear interest at either a Base Rate loan or LIBOR Rate loan,Daily Simple SOFR rate, 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 LIBORDaily Simple SOFR rate plus 1.00% per annum (provided the Base Rate shall never be less than the Floor (as defined in the Credit Facility)), plus (ii) a varying percentage, based on the Company’s average excess availability, of either 0.25% or 0.50% (the “Applicable Margin”). LIBOR RateDaily Simple SOFR loans which may be either for 1 month or 3 months,will bear interest at a rate equal to (i) the LIBORDaily Simple SOFR rate orplus an adjustment of 0.10% (provided the Benchmark Rate as defined inDaily Simple SOFR rate shall never be less than the credit agreementFloor), plus (ii) the Applicable Margin. Any swingline loan will continue to bear interest at a varying percentage based onrate equal to the Company’s average excess availability,Base Rate plus the Applicable Margin. We are subject to an unused line fee of either 1.25% or 1.50%0.25%.
We had no outstanding borrowings under the New Credit Facility at July 30, 202229, 2023 and no borrowings during the first six months of fiscal 2022.2023. At July 30, 2022,29, 2023, outstanding standby letters of credit were $2.4$4.0 million and outstanding documentary letters of credit were $1.0$1.2 million. The average unused excess availability during the first six months of fiscal 20222023 was approximately $79.9$85.6 million and the unused excess availability at July 30, 202229, 2023 was $85.1$81.8 million.
Capital Expenditures
For fiscal 2023, we expect our capital expenditures to range from $19.0 million to $21.0 million, of which approximately $7.8 million is discretionary spending for new or improved stores with the remaining for non-discretionary, infrastructure improvements.
The following table sets forth the open stores and related square footage at July 29, 2023 and July 30, 2022, and July 31, 2021, respectively:
|
| July 30, 2022 |
| July 31, 2021 |
|
| July 29, 2023 |
| July 30, 2022 |
| ||||||||||||||||||||||||
Store Concept |
| Number of |
|
| Square |
|
| Number of |
|
| Square |
|
|
| Number of |
|
| Square |
|
| Number of |
|
| Square |
|
| ||||||||
(square footage in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
DXL Retail |
|
| 218 |
|
|
| 1,664 |
|
|
| 221 |
|
|
| 1,685 |
|
|
|
| 219 |
|
|
| 1,666 |
|
|
| 218 |
|
|
| 1,664 |
|
|
DXL Outlets |
|
| 16 |
|
|
| 80 |
|
|
| 16 |
|
|
| 80 |
|
|
|
| 16 |
|
|
| 80 |
|
|
| 16 |
|
|
| 80 |
|
|
Casual Male XL Retail |
|
| 31 |
|
|
| 103 |
|
|
| 40 |
|
|
| 132 |
|
|
|
| 27 |
|
|
| 88 |
|
|
| 31 |
|
|
| 103 |
|
|
Casual Male Outlets |
|
| 19 |
|
|
| 57 |
|
|
| 20 |
|
|
| 60 |
|
|
|
| 19 |
|
|
| 57 |
|
|
| 19 |
|
|
| 57 |
|
|
Total Stores |
|
| 284 |
|
|
| 1,904 |
|
|
| 297 |
|
|
| 1,957 |
|
|
|
| 281 |
|
|
| 1,891 |
|
|
| 284 |
|
|
| 1,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our capital expendituresWe have executed lease agreements for three new stores, one in each of the past two years have been very limited dueLos Angeles, New York and Cincinnati markets. We expect these stores to open by the end of 2023. During the second quarter, we completed the conversion of one Casual Male store 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 merchandising initiatives. We are also actively pursuing opportunities to relocate or convert our remaining Casual Male XL stores to DXL stores which may require some capital investment in fiscal 2022. Duringstore format. By the first six monthsend of fiscal 2022, we closed 4 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 store. We believe that our store portfolio is a vital asset to our business strategy and2023, we expect to continueopen 3 new DXL stores and 10 Casual Male-to-DXL conversion stores and to invest in stores over the next several years as we further strengthen the store portfolio.have begun construction on at least 5 DXL remodels. Over the next three to five years, based on our preliminary store development plan, we believe that we could potentially open up to 50 net new and relocated stores.DXL stores across the United States.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
24
There have been no material changes to the critical accounting policies and estimates disclosed in our Fiscal 20212022 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, adjusted net income, adjusted net income per diluted share, adjusted EBITDA and Adjustedadjusted EBITDA margin 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 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 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.
23
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. Management believes this metric is important to investors because it demonstrates the Company's ability to strengthen liquidity while supporting its capital projects and new store growth. We expect to fund our ongoing capital expenditures with cash flow from operations.
The following table reconciles free cash flow:
|
| For the six months ended |
| For the six months ended | ||||||||||||||
(in millions) |
| July 30, 2022 |
|
| July 31, 2021 |
|
|
| July 29, 2023 |
|
| July 30, 2022 |
|
| ||||
Cash flow from operating activities (GAAP basis) |
| $ | 23.8 |
|
| $ | 42.2 |
|
|
| $ | 26.2 |
|
| $ | 23.8 |
|
|
Capital expenditures |
|
| (4.1 | ) |
|
| (1.7 | ) |
|
|
| (4.7 | ) |
|
| (4.1 | ) |
|
Free Cash Flow (non-GAAP basis) |
| $ | 19.8 |
|
| $ | 40.5 |
|
|
| $ | 21.6 |
|
| $ | 19.8 |
|
|
Adjusted Net Income and Adjusted Net Income Per Diluted Share: Adjusted net income and adjusted net income per diluted share is calculated by excluding any asset impairment charge (gain) and the loss from the termination of the pension plan, subtracting the actual income tax provision (benefit) and applying an effective tax rate of 26%. The Company believes that this comparability is useful in comparing the actual results period to period. Adjusted net income per diluted share is then calculated by dividing the adjusted net income by the weighted average shares outstanding for the respective period, on a diluted basis.
|
| For the three months ended |
|
| For the six months ended |
| ||||||||||||||||||||||||||
|
| July 29, 2023 |
|
| July 30, 2022 |
|
| July 29, 2023 |
|
| July 30, 2022 |
| ||||||||||||||||||||
|
| $ |
|
| Per |
|
| $ |
|
| Per |
|
| $ |
|
| Per |
|
| $ |
|
| Per |
| ||||||||
(in millions, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net income (GAAP basis) |
| $ | 11.6 |
|
| $ | 0.18 |
|
| $ | 56.9 |
|
| $ | 0.85 |
|
| $ | 18.6 |
|
| $ | 0.28 |
|
| $ | 70.3 |
|
| $ | 1.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Adjust for impairment (gain) of assets |
|
| — |
|
|
|
|
|
| (0.0 | ) |
|
|
|
|
| — |
|
|
|
|
|
| (0.4 | ) |
|
|
| ||||
Add back loss on termination of pension plan |
|
| 4.2 |
|
|
|
|
|
| — |
|
|
|
|
|
| 4.2 |
|
|
|
|
|
| — |
|
|
|
| ||||
Add back actual income tax provision |
|
| 4.2 |
|
|
|
|
|
| (35.1 | ) |
|
|
|
|
| 6.7 |
|
|
|
|
|
| (35.0 | ) |
|
|
| ||||
Add income tax provision, assuming a normal tax rate of 26% |
|
| (5.2 | ) |
|
|
|
|
| (5.7 | ) |
|
|
|
|
| (7.7 | ) |
|
|
|
|
| (9.1 | ) |
|
|
| ||||
Adjusted net income (non-GAAP basis) |
| $ | 14.8 |
|
| $ | 0.23 |
|
|
| 16.1 |
|
| $ | 0.24 |
|
| $ | 21.8 |
|
| $ | 0.33 |
|
| $ | 25.8 |
|
| $ | 0.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Weighted average number of common shares outstanding on a diluted basis |
|
|
|
|
| 65.4 |
|
|
|
|
|
| 66.7 |
|
|
|
|
|
| 65.8 |
|
|
|
|
|
| 67.5 |
|
Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA is calculated as earnings before interest, taxes, depreciation and amortization and is before any impairment of assets, if any. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by Sales. We believe that providing adjusted EBITDA and adjusted EBITDA margin is useful to investors in evaluating our performance
25
and is aare key metricmetrics to measure profitability and economic productivity. The following table reconciles adjusted EBITDA from net income:income and calculates adjusted EBITDA margin:
|
| For the three months ended |
|
| For the six months ended |
| For the three months ended |
| For the six months ended |
| ||||||||||||||||||||||||||
|
| July 30, 2022 |
|
| July 31, 2021 |
|
|
|
| July 30, 2022 |
|
| July 31, 2021 |
|
|
| July 29, 2023 |
|
| July 30, 2022 |
|
| July 29, 2023 |
|
| July 30, 2022 |
| |||||||||
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net income (GAAP basis) |
| $ | 56.9 |
|
| $ | 24.5 |
|
|
|
| $ | 70.3 |
|
| $ | 33.1 |
|
|
| $ | 11.6 |
|
| $ | 56.9 |
|
| $ | 18.6 |
|
| $ | 70.3 |
| |
Add back: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Impairment (gain) of assets |
|
| (0.0 | ) |
|
| (0.4 | ) |
|
| - |
| (0.4 | ) |
|
| (1.0 | ) |
|
|
| — |
|
|
| (0.0 | ) |
|
| — |
|
|
| (0.4 | ) | |
Loss on termination of pension plan |
|
| 4.2 |
|
|
| — |
|
|
| 4.2 |
|
|
| — |
| ||||||||||||||||||||
Provision (benefit) for income taxes |
|
| (35.1 | ) |
|
| 0.4 |
|
|
|
|
| (35.0 | ) |
|
| 0.5 |
|
|
|
| 4.2 |
|
|
| (35.1 | ) |
|
| 6.7 |
|
|
| (35.0 | ) | |
Interest expense |
|
| 0.1 |
|
|
| 0.9 |
|
|
|
|
| 0.2 |
|
|
| 2.1 |
|
| |||||||||||||||||
Interest (income) expense |
|
| (0.5 | ) |
|
| 0.1 |
|
|
| (0.8 | ) |
|
| 0.2 |
| ||||||||||||||||||||
Depreciation and amortization |
|
| 4.0 |
|
|
| 4.4 |
|
|
|
|
| 8.0 |
|
|
| 8.9 |
|
|
|
| 3.5 |
|
|
| 4.0 |
|
|
| 6.9 |
|
|
| 8.0 |
| |
Adjusted EBITDA (non-GAAP basis) |
| $ | 25.9 |
|
| $ | 29.8 |
|
|
|
| $ | 43.1 |
|
| $ | 43.5 |
|
|
| $ | 22.9 |
|
| $ | 25.9 |
|
| $ | 35.6 |
|
| $ | 43.1 |
| |
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Sales |
| $ | 140.0 |
|
| $ | 144.6 |
|
| $ | 265.5 |
|
| $ | 272.3 |
| ||||||||||||||||||||
Adjusted EBITDA margin (non-GAAP), as a percentage of sales |
|
| 16.4 | % |
|
| 17.9 | % |
|
| 13.4 | % |
|
| 15.8 | % |
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.borrowings. We regularly assess these risks and have established policies and business practices to protect against the adverse effects of these and other potential exposures.
There have not been any material changes to our interest rate or foreign currency risks previously disclosed in Part II, Item 7A of our Fiscal 20212022 Annual Report.
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 July 30, 2022.29, 2023. 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 July 30, 2022,29, 2023, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
While the majority of our home office employees continue to work remotely for a portion of the work week, weWe 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 July 30, 202229, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
2426
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 20212022 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(c)
On March 15, 2022,14, 2023, the Company’s Board of Directors approved a stock repurchase program that allows forpursuant to which the Company may repurchase of up to $15.0 million of ourits common stock through open market and privately negotiated transactions. 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 will expire onin March 15, 2023, but2024 and may be suspended, terminated or modified at any time for any reason. At July 30, 2022, the remaining authorization under the stock repurchase program was approximately $2.3 million.
Stock repurchase activity during the three months ended July 30, 202229, 2023 was as follows:
Period |
| (a) |
|
| (b) |
|
| (c) |
|
| (d) |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
April 30, 2023 to May 27, 2023 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 15,000,000 |
|
May 28, 2023 to July 1, 2023 |
|
| 1,595,897 |
|
| $ | 4.70 |
|
|
| 1,595,897 |
|
| $ | 7,500,001 |
|
July 2, 2023 to July 29, 2023 |
|
| 653,253 |
|
| $ | 5.07 |
|
|
| 653,253 |
|
| $ | 4,185,921 |
|
Total |
|
| 2,249,150 |
|
| $ | 4.81 |
|
|
| 2,249,150 |
|
| $ | 4,185,921 |
|
(1) Average price paid per share and the approximate dollar value of shares that may yet be purchased under the plan excludes the accrual of excise tax of $0.1 million as of July 29, 2023.
Period |
| (a) |
|
| (b) |
|
| (c) |
|
| (d) |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
May 1, 2022 to May 28, 2022 |
|
| 555,680 |
|
| $ | 4.18 |
|
|
| 555,680 |
|
| $ | 7,828,265 |
|
May 29, 2022 to July 2, 2022 |
|
| 567,518 |
|
| $ | 4.71 |
|
|
| 567,518 |
|
| $ | 5,153,032 |
|
July 3, 2022 to July 30, 2022 |
|
| 800,000 |
|
| $ | 3.60 |
|
|
| 800,000 |
|
| $ | 2,271,288 |
|
Total |
|
| 1,923,198 |
|
| $ | 4.10 |
|
|
| 1,923,198 |
|
| $ | 2,271,288 |
|
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
25c) Insider Trading Arrangements
Trading Plans
On June 30, 2023, Robert S. Molloy, General Counsel and Secretary, enteredinto a 10b5-1 sales plan (the “10b5-1 Sales Plan”) intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act. The 10b5-1 Sales Plan provides for the sale of up to 120,000 shares of common stock that are issuable upon exercise of vested stock options. The 10b5-1 Sales Plan will become effective on October 11, 2023 and will terminate on March 18, 2024, subject to earlier termination upon the sale of all shares subject to the 10b5-1 Sales Plan or as otherwise provided in the 10b5-1 Sales Plan.
No other directors or executive officers of the Company adopted, modified or terminated any contract, instruction or written plan for the purchase or sale of the Company’s securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any non-Rule 10b5 trading arrangement, (as defined in Item 408(c) of Regulation S-K) during the quarterly period covered by this report.
27
Item 6. Exhibits.
10.1 | ||
31.1 | ||
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.
DESTINATION XL GROUP, INC. | ||||
Date: August | By: | /s/ John F. Cooney | ||
John F. Cooney | ||||
Senior Vice President, Chief Accounting Officer and Corporate Controller (Duly Authorized Officer and Chief Accounting Officer) |
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