Destination XL Has a Foot Traffic Problem

Destination XL’s Big and Tall customers are thinking carefully about where and how they spend their money.

Fashion Investor and Retail Lender B. Riley Under SEC Probe

“We are seeing customers gravitate towards lower-priced goods and select promotions,” Harvey S. Kanter, Destination’s president and CEO said during a company conference call on Thursday after posting second-quarter results.

The customer is spending on his family, his immediate needs, and not necessarily for himself at the big and tall space, Kanter said. “In stores, the story for Q2 is much the same as Q1. Our struggles continued to be traffic, traffic, and traffic…. Our store issue is dominated by a lack of traffic, while conversion is up and average transaction value is holding its own,” he said, adding that the overall men’s category is struggling, and potentially could be worse in the big and tall sector.

The good news is that when he does shop at the store, he is “purpose-driven” in his purchases. In comparison, while online traffic is far greater than in the brand’s stores, the conversion rate is far lower. “We see him putting items in his basket or wish list, and then never executing a transaction.,” Kanter said, adding that the data suggests the customer is cross-shopping and looking for deals.

“The commitment of five to six minutes on the site of putting something in his cart and then looking across other retailers is the reality of the direct environment today,” Kanter said, adding that the “customer is OK with trading down.” He also cited to the retailer’s “difficult position” in that national brands have been ratcheting up their promotional offers—particularly leading up to Father’s Day—and consumers can find that same items DXL sells but at a discount on the brands’ own websites.

“This environment forced us to promote more than intended, which led to more markdowns, which we were fortunately able to offset through improvements in shipping and loyalty costs,” Kanter said.

He said the business was down in virtually every category, and customers were migrating from higher price point brands to more entry-level brands, such as Harbor Bay. While the current merchandise mix is a balance of private label and national brands, the second quarter saw customer shift more into private brands. Sportswear contributes 77 percent of total sales, with tailored clothing at 19 percent and footwear at 4 percent.

Given the ongoing challenges, Kanter said the company’s been evolving certain operating elements to improve all-around results. Long-term initiatives include a brand campaign, new stores, distribution alliances and a new web platform. The retailer is also collaborating with Nordstrom in a distribution alliance that sees the brand on the upscale retailer’s marketplace site. After two years of negotiations, initial sales are encouraging, Kanter said. “We are currently offering 30 brands and over 800 styles in casual sportswear and tailored clothing, and in the coming months, we will be adding more brands and over 1,000 styles,” he said.

Lily AI Lauds Amazon, Walmart, Stitch Fix As Top Retailers Using AI

In other distribution news, Destination is expanding its rollout of the UntuckIt brand by extending it to more stores as it targets a total of 100 doors.

But because of the consumer backdrop, resulting in the sharp drop in the business that began in the first quarter and continued into the second, Destinations’ EBITDA margin rate has been eroding. To counter that, the retailer is slowing it capital investments concerning new stores . And while it is still enthusiastic about long-term prospects, Destination needs to rebalance spending over the short-term, Kanter said.

Net income for the three months ended Aug. 3 fell 79.5 percent to $2.4 million, or 4 cents a diluted share, from net income of $11.6 million, or 18 cents, a year ago. Sales fell 10.9 percent to $124.8 million from $140.0 million.

For the six months, net income was down 66.8 percent to $6.2 million, or 10 cents a diluted share, from $18.6 million, or 28 cents, a year ago. Sales fell 9.5 percent to $240.3 million from $265.5 million.

The company lowered projected full year guidance, with sales between $470 million to $490 million, down from prior guidance of $500 million. That reflects a comparable sales decline of 6 percent to 10 percent.

Big Lots Is Closing 150 Stores, Eyeing More Capital