Destination XL Group, Inc. :DXLG-US: Earnings Analysis: Q4, 2016 By the Numbers

Destination XL Group, Inc. reports financial results for the quarter ended January 31, 2016.

We analyze the earnings along side the following peers of Destination XL Group, Inc. – Tailored Brands, Inc., Aeropostale, Inc., Zumiez Inc., American Eagle Outfitters, Inc., Gap, Inc., Buckle, Inc., Express, Inc. and Ralph Lauren Corporation Class A (TLRD-US, ARO-US, ZUMZ-US, AEO-US, GPS-US, BKE-US, EXPR-US and RL-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 124.04 million, Net Earnings of USD -1.38 million.
  • Gross margins narrowed from 43.02% to 39.52% compared to the same period last year, operating (EBITDA) margins now 6.36% from 9.25%.
  • Year-on-year change in operating cash flow of -19.67% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2015-01-31 2015-04-30 2015-07-31 2015-10-31 2016-01-31
Relevant Numbers (Quarterly)
Revenues (mil) 119.56 104.41 114.15 99.63 124.04
Revenue Growth (%YOY) 10.15 7.89 10.07 6.39 3.75
Earnings (mil) 1.39 -0.57 -0.98 -5.47 -1.38
Earnings Growth (%YOY) 102.52 83.77 75.72 12.88 -199.71
Net Margin (%) 1.16 -0.55 -0.86 -5.49 -1.11
EPS 0.03 -0.01 -0.02 -0.11 -0.03
Return on Equity (%) 5.95 -2.48 -4.22 -24.18 -6.26
Return on Assets (%) 2.05 -0.85 -1.42 -7.77 -1.97

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Market Share Versus Profits

Revenues History
Earnings History

DXLG-US‘s change in revenue this period compared to the same period last year of 3.75% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that DXLG-US is holding onto its market share. Also, for comparison purposes, revenues changed by 24.51% and earnings by 74.73% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 43.02% to 39.52%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 9.25% to 6.36% in this time frame. For comparison, gross margins were 37.93% and EBITDA margins were 2.46% in the previous period.

Gross Margin Versus EBITDA Margin

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

DXLG-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 20.23 days from 31.07 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Cash Versus Earnings – Sustainable Performance?

DXLG-US‘s change in operating cash flow of -19.67% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 3.70% to 0.04% and (2) one-time items that contributed to a decrease in pretax margins from 1.22% to -1.06%

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Destination XL Group, Inc.

Company Profile

Destination XL Group, Inc. is a multi-channel specialty retailer of big and tall men’s apparel with operations throughout the United States, Canada and in London, England. The company’s portfolio of brands include Destination XL, Casual Male XL, Rochester Clothing, B&T Factory Direct, ShoesXL and LivingXL. Destination XL Group was founded by Calvin Margolis and Stanley I. Berger in 1976 and is headquartered in Canton, MA.

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