- Operating loss of $2.2 million versus $2.8
million in prior year period
- Adjusted EBITDA before other charges of $2.0
million versus $4.0 million in prior year period
- Gross Profit Margins of 51.4% versus 51.7% in
prior year period
- Selling, General and Administrative expenses
decline 9.9% from prior year period
- Engaged Greenhill & Co. to Evaluate
Strategic Alternatives to Maximize Shareholder Value
Destination Maternity Corporation (NASDAQ: DEST), the world's
leading maternity apparel retailer, today announced financial
results for the second quarter of fiscal 2019 ended August 3, 2019
compared to the second quarter of fiscal 2018 ended August 4,
2018.
Commentary
“Our results this quarter illustrate the ongoing headwinds
facing our business. While cost savings initiatives drove
reductions in SG&A expense and a pullback in promotional
cadence helped to hold margins in line with the prior year, sales
declines of 11.9% year-over-year more than offset the benefits to
our bottom line,” said Dave Helkey, Chief Financial Officer of
Destination Maternity.
“While we continue to believe we have a compelling business and
remain focused on delivering long-term profitable growth,
challenges persist and more needs to be done. As part of our
ongoing review of the Company’s strategic initiatives, our Board of
Directors has announced that it has engaged Greenhill & Co to
commence a comprehensive review of strategic alternatives. We
believe that it is in the best interests of our shareholders to
conduct a thorough evaluation of all options reasonably available
to the Company to position the business for success.”
Review of Strategic
Alternatives
At the direction of its Board of Directors, Destination
Maternity is reviewing various potential strategic and financial
alternatives. The strategic alternatives expected to be considered
include, but are not limited to, a sale or merger of the Company,
continuing to pursue value-enhancing initiatives as a standalone
company, along with capital structure optimization that may involve
potential financings and/or the sale or other disposition of
certain businesses or assets.
The company has retained Greenhill & Co as financial advisor
to assist with its strategic alternatives review.
There can be no assurance that this process will result in the
approval or completion of any particular strategic alternative or
transaction in the future. The Company does not intend to disclose
developments or provide updates on the progress or status of the
review of strategic alternatives unless and until required or when
the Company determines appropriate.
Second Quarter Fiscal 2019 Financial
Results
- Net loss for the second quarter of fiscal 2019 was $3.5
million, or ($0.25) per share (diluted), compared to net loss of
$4.0 million, or ($0.29) per share (diluted), for the second
quarter of fiscal 2018.
- Operating loss of $2.2 million for the second quarter of fiscal
2019 compared to operating loss of $2.8 million in the second
quarter of fiscal 2018.
- Adjusted net loss for the second quarter of fiscal 2019 was
$2.8 million, or ($0.20) per share (diluted), compared to the
comparably adjusted net loss for the second quarter of fiscal 2018
of $1.6 million, or ($0.11) per share (diluted).
- Adjusted EBITDA before other charges and effect of change in
accounting principle decreased to $2.0 million for the second
quarter of fiscal 2019 from $4.0 million for the second quarter of
fiscal 2018.
- Net sales for the second quarter of fiscal 2019 decreased 11.9%
to $84.9 million from $96.4 million for the second quarter of
fiscal 2018. Sales were negatively impacted by the net closure of 6
owned locations and 55 leased lease locations as well as a decrease
in comparable sales.
- Comparable sales for the second quarter of fiscal 2019
decreased 10.5% from the second quarter of fiscal 2018. The
decrease was attributable to an 11.9% decrease in comparable store
sales and a 6.4% decrease in ecommerce sales.
- Gross margin rate for the second quarter of fiscal 2019 was
51.4%, a decrease of 30 basis points from the comparable gross
margin in the second quarter of fiscal 2018.
- Selling, general and administrative expenses (“SG&A”) for
the second quarter of fiscal 2019 decreased 9.9% to $45.2 million
from $50.1 million for the second quarter of fiscal 2018. As a
percentage of net sales, SG&A increased 120 basis points to
53.2% vs 52.0% for the second quarter of fiscal 2018.
First Six Months of Fiscal 2019
Financial Results (26 Weeks Ended August 4, 2019)
- Net sales for the first six months decreased 10.3% to $179.1
million from $199.6 million for the comparable period in fiscal
2018.
- Comparable sales for the first six months of fiscal 2019
decreased 8.7%, compared to an increase of 0.5% for the six months
of fiscal 2018.
- Gross margin for the first six months of fiscal 2019 was 53.2%,
an increase of 50 basis points from the comparable prior year gross
margin.
- Selling, general and administrative expenses (“SG&A”) for
the first six months of fiscal 2019 decreased 8.1% to $93.6
million. As a percentage of net sales, SG&A increased 120 basis
points to 52.3%.
- Adjusted EBITDA before other charges and change in accounting
principle was $8.7 million for the first six months of fiscal 2019,
a decrease of 26.6% compared to $11.8 million for the first six
months of fiscal 2018.
- Adjusted net loss for the first six months of fiscal 2019 was
$2.2 million, or ($0.16) per share (diluted), compared to the
comparably adjusted net loss for the first six months of fiscal
2018 of $0.6 million, or ($0.04) per share (diluted).
Adjusted EBITDA before other charges, and adjusted net loss, are
defined in the financial tables at the end of this press
release.
Other Financial
Information
- Capital expenditures for second quarter fiscal 2019 totaled
$1.3 million primarily driven by investments to support key systems
projects with minor investments in stores.
- At August 3, 2019, inventory was $67.7 million, a decrease of
$3.2 million compared to $70.9 million at February 2, 2019.
Retail Locations
Three
Months Ended
August 3, 2019
August 4, 2018
Store Openings (1)
0
2
Store Closings (1)
6
6
Period End Retail
Location Count (1)
Stores
446
480
Leased Department Locations
491
634
Total Retail Locations
937
1,114
- Excludes international franchised locations.
Financial Outlook
The Company is withdrawing its Adjusted EBITDA guidance for the
remainder of 2019 as a result of the announced review of strategic
alternatives.
Conference Call
Information
The Company will host a conference call regarding second quarter
fiscal 2019 financial results that includes comments on the results
from members of our senior management on Tuesday, September 17,
2019 at 10:00 a.m. Eastern Time.
Investors and analysts can listen to this conference call by
dialing (800) 219-6970 in the United States and Canada or (574)
990-1028 outside of the United States and Canada. The call will
also be available on the investors section of the Company's website
at http://investor.destinationmaternity.com. Passcode for the
conference call is 6190426.
In the event that you are unable to listen to the call, a replay
will be available at 1:00 p.m. Eastern Time on Tuesday, September
17, 2019 through 1:00 p.m. Eastern Time on Tuesday, September 24,
2019 by calling (855) 859-2056 in the United States and Canada or
(404) 537-3406 outside of the United States and Canada. Passcode
for the replay is 6190426.
About Destination
Maternity
Destination Maternity is the leading designer and omni-channel
retailer of maternity apparel in the United States, with the only
nationwide chain of maternity apparel specialty stores, as well as
a deep and expansive assortment available through multiple online
distribution points, including our three brand-specific websites.
As of August 3, 2019, we operate 937 retail locations, including
446 stores in the United States, Canada and Puerto Rico, and 491
leased departments located within department stores and baby
specialty stores throughout the United States and Canada. We also
sell our merchandise on the Internet, primarily through our
Motherhood.com, APeaInThePod.com and DestinationMaternity.com
websites. We also sell our merchandise through our Canadian
website, MotherhoodCanada.ca, through Amazon.com in the United
States, and through websites of certain of our retail partners,
including Macys.com. Our 446 stores operate under three retail
nameplates: Motherhood Maternity®, A Pea in the Pod® and
Destination Maternity®. We also operate 491 leased departments
within leading retailers such as Macy’s®, buybuy BABY® and
Boscov’s®. Generally, we are the exclusive maternity apparel
provider in our leased department locations.
Reconciliation of Non-GAAP Financial
Measures
This press release and the accompanying financial tables contain
non-GAAP financial measures within the meaning of the SEC's
Regulation G, including 1) adjusted net loss, 2) adjusted net loss
per share - diluted, 3) Adjusted EBITDA, 4) Adjusted EBITDA before
other charges, 5) Adjusted EBITDA margin, and 6) Adjusted EBITDA
margin before other charges. In the accompanying financial tables,
the Company has provided reconciliations of these non-GAAP
financial measures to the most directly comparable GAAP financial
measures. The Company's management believes that each of these
non-GAAP financial measures provides useful information about the
Company's results of operations and/or financial position to both
investors and management. Each non-GAAP financial measure is
provided because management believes it is an important measure of
financial performance used in the retail industry to measure
operating results, to determine the value of companies within the
industry and to define standards for borrowing from institutional
lenders. The Company uses each of these non-GAAP financial measures
as a measure of the performance of the Company. In addition,
certain of the Company's cash and equity incentive compensation
plans are based on the Company's level of achievement of Adjusted
EBITDA before other charges. The Company provides these various
non-GAAP financial measures to investors to assist them in
performing their analysis of its historical operating results. Each
of these non-GAAP financial measures reflects a measure of the
Company's operating results before consideration of certain charges
and consequently, none of these measures should be construed as an
alternative to net income (loss) or operating income (loss) as an
indicator of the Company's operating performance, as determined in
accordance with generally accepted accounting principles. The
Company may calculate each of these non-GAAP financial measures
differently than other companies.
Forward-Looking
Statements
The Company cautions that any forward-looking statements (as
such term is defined in the Private Securities Litigation Reform
Act of 1995) contained in this press release or made from time to
time by management of the Company, including those regarding
earnings, net sales, comparable sales, other results of operations,
liquidity and financial condition, and various business
initiatives, involve risks and uncertainties, and are subject to
change based on various important factors. The following factors,
among others, in some cases have affected and in the future could
affect the Company's financial performance and actual results and
could cause actual results to differ materially from those
expressed or implied in any such forward-looking statements: the
strength or weakness of the retail industry in general and of
apparel purchases in particular, our ability to successfully manage
our various business initiatives, the success of our international
business and its expansion, our ability to successfully manage and
retain our leased department and international franchise
relationships and marketing partnerships, future sales trends in
our various sales channels, unusual weather patterns, changes in
consumer spending patterns, raw material price increases, overall
economic conditions and other factors affecting consumer
confidence, demographics and other macroeconomic factors that may
impact the level of spending for apparel (such as fluctuations in
pregnancy rates and birth rates), expense savings initiatives, our
ability to anticipate and respond to fashion trends and consumer
preferences, unanticipated fluctuations in our operating results,
the impact of competition and fluctuations in the price,
availability and quality of raw materials and contracted products,
availability of suitable store locations, continued availability of
capital and financing, our ability to hire, develop and retain
senior management and sales associates, our ability to develop and
source merchandise, our ability to receive production from foreign
sources on a timely basis, our compliance with applicable financial
and other covenants under our financing arrangements, potential
debt prepayments, the trading liquidity of our common stock,
changes in market interest rates, our compliance with certain tax
incentive and abatement programs, war or acts of terrorism and
other factors set forth in the Company's periodic filings with the
SEC, or in materials incorporated therein by reference.
Although it is believed that the expectations reflected in such
forward-looking statements are reasonable, no assurance can be
given that such expectations will prove to have been correct and
persons reading this announcement are therefore cautioned not to
place undue reliance on these forward-looking statements which
speak only as at the date of this announcement. The Company assumes
no obligation to update or revise the information contained in this
announcement (whether as a result of new information, future events
or otherwise), except as required by applicable law.
DESTINATION MATERNITY
CORPORATION AND SUBSIDIARIES
Consolidated Statements of
Operations
(in thousands, except percentages
and per share data)
(unaudited)
Three Months Ended
Six Months Ended
August 3, 2019
August 4, 2018
August 3, 2019
August 4, 2018
Net sales
$
84,901
$
96,395
$
179,114
$
199,622
Cost of goods sold
41,253
46,530
83,869
94,354
Gross profit
43,648
49,865
95,245
105,268
Gross margin
51.4
%
51.7
%
53.2
%
52.7
%
Selling, general and administrative
expenses
45,153
50,095
93,643
101,952
Store closing, asset impairment and asset
disposal expenses
778
672
1,647
1,641
Other (income) charges, net
(119
)
1,923
543
3,073
Operating loss
(2,164
)
(2,825
)
(588
)
(1,398
)
Interest expense, net
1,340
1,144
2,755
2,301
Loss before income taxes
(3,504
)
(3,969
)
(3,343
)
(3,699
)
Income tax provision
31
56
62
112
Net loss
$
(3,535
)
$
(4,025
)
$
(3,405
)
$
(3,811
)
Net loss per share— Basic
$
(0.25
)
$
(0.29
)
$
(0.25
)
$
(0.28
)
Average shares outstanding— Basic
13,871
13,823
13,848
13,831
Net loss per share— Diluted
$
(0.25
)
$
(0.29
)
$
(0.25
)
$
(0.28
)
Average shares outstanding— Diluted
13,871
13,823
13,848
13,831
Reconciliation of Net Loss to Adjusted
Net Loss
Net loss, as reported
$
(3,535
)
$
(4,025
)
$
(3,405
)
$
(3,811
)
Other (income) charges, net
(119
)
1,923
543
3,073
Income tax effect of other (income)
charges, net
28
(474
)
(127
)
(746
)
Deferred tax valuation allowance related
to cumulative losses
824
991
793
924
Adjusted net loss
$
(2,803
)
$
(1,585
)
$
(2,195
)
$
(560
)
Adjusted net loss per share - diluted
$
(0.20
)
$
(0.11
)
$
(0.16
)
$
(0.04
)
DESTINATION MATERNITY
CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance
Sheets
(in thousands)
(unaudited)
August 3, 2019
February 2, 2019
ASSETS
Current assets:
Cash and cash equivalents
$
1,142
$
1,154
Trade receivables, net
7,012
7,945
Inventories
67,691
70,872
Prepaid expenses and other current
assets
9,961
9,407
Total current assets
85,806
89,378
Property and equipment, net
48,215
51,483
Operating lease assets
125,283
—
Other assets
5,835
5,313
Total assets
$
265,139
$
146,174
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Line of credit borrowings
$
23,300
$
20,400
Current portion of long-term debt
3,841
4,372
Accounts payable
21,477
21,854
Operating lease liabilities
30,301
—
Accrued expenses and other current
liabilities
24,226
31,056
Total current liabilities
103,145
77,682
Long-term debt
21,343
21,784
Operating lease and other non-current
liabilities
119,225
19,557
Total liabilities
243,713
119,023
Stockholders’ equity
21,426
27,151
Total liabilities and stockholders’
equity
$
265,139
$
146,174
Selected Consolidated Balance
Sheet Data
(in thousands)
(unaudited)
(unaudited)
August 3, 2019
February 2, 2019
August 4, 2018
Cash and cash equivalents
$
1,142
$
1,154
$
1,317
Inventory
67,691
70,872
67,753
Property and equipment, net
48,215
51,483
59,177
Line of credit borrowings
23,300
20,400
7,300
Total debt
48,484
46,556
35,983
Stockholders’ equity
21,426
27,151
37,415
DESTINATION MATERNITY
CORPORATION AND SUBSIDIARIES
Consolidated Statements of
Cash Flows
(in thousands, except percentages
and per share data)
(unaudited)
Six Months Ended
August 3, 2019
August 4, 2018
Operating Activities
Net loss
$
(3,405
)
$
(3,811
)
Adjustments to reconcile net loss to net
cash provided
by operating activities:
Depreciation and amortization
6,992
7,961
Stock-based compensation expense
290
584
Loss on impairment of long-lived
assets
1,172
1,519
Loss on disposal of assets
259
68
Grow NJ award benefit
(1,296
)
(1,412
)
Amortization of deferred financing
costs
346
336
Changes in assets and liabilities:
Decrease (increase) in:
Trade receivables
933
(145
)
Inventories
3,181
3,503
Prepaid expenses and other current
assets
(554
)
479
Operating leases and other non-current
assets
8,583
12
Increase (decrease) in:
Accounts payable, accrued expenses,
operating leases and other current liabilities
(4,822
)
(1,831
)
Operating leases and other non-current
liabilities
(10,262
)
(1,417
)
Net cash provided by operating
activities
1,417
5,846
Investing Activities
Capital expenditures
(3,780
)
(2,579
)
Net cash used in investing activities
(3,780
)
(2,579
)
Financing Activities
Decrease in cash overdraft
759
(2,657
)
Decrease in line of credit borrowings
2,900
(700
)
Proceeds from long-term debt
1,802
2,500
Repayment of long-term debt
(3,075
)
(2,537
)
Deferred financing costs paid
—
(160
)
Withholding taxes on stock-based
compensation paid in connection
with repurchase of common stock
(35
)
(29
)
Net cash used in financing activities
2,351
(3,583
)
Effect of exchange rate changes on cash
and cash equivalents
—
(2
)
Net Decrease in Cash and Cash
Equivalents
(12
)
(318
)
Cash and Cash Equivalents, Beginning of
Period
1,154
1,635
Cash and Cash Equivalents, End of
Period
$
1,142
$
1,317
DESTINATION MATERNITY
CORPORATION AND SUBSIDIARIES
Supplemental Financial
Information
Reconciliation of Net Loss to
Adjusted EBITDA(1)
and Adjusted EBITDA Before
Other Income and Charges,
and Operating Loss Margin to
Adjusted EBITDA Margin
and Adjusted EBITDA Margin
Before Other Income and Charges
(in thousands, except
percentages)
(unaudited)
Three Months Ended
Six Months Ended
August 3, 2019
August 4, 2018
August 3, 2019
August 4, 2018
Net loss
$
(3,535
)
$
(4,025
)
$
(3,405
)
$
(3,811
)
Income tax provision
31
56
62
112
Interest expense, net
1,340
1,144
2,755
2,301
Operating loss
(2,164
)
(2,825
)
(588
)
(1,398
)
Depreciation and amortization expense
3,438
3,910
6,992
7,960
Loss on impairment of long-lived
assets
610
632
1,172
1,519
Loss on disposal of assets
71
55
259
68
Stock-based compensation expense
147
256
290
584
Adjusted EBITDA (1)
2,102
2,028
8,125
8,733
Other (income) charges, net
(119
)
1,923
543
3,073
Adjusted EBITDA before other charges
$
1,983
$
3,951
$
8,668
$
11,806
Net Sales
$
84,901
$
96,395
$
179,114
$
199,622
Operating loss margin (operating loss as a
percentage of net sales)
(2.5
)%
(2.9
)%
(0.3
)%
(0.7
)%
Adjusted EBITDA margin (adjusted EBITDA as
a percentage of net sales
2.5
%
2.1
%
4.5
%
4.4
%
Adjusted EBITDA margin before other income
and charges (adjusted EBITDA before other income and charges as a
percentage of net sales)
2.3
%
4.1
%
4.8
%
5.9
%
(1) Adjusted EBITDA represents operating income (loss) before
deduction for the following non-cash charges: (i) depreciation and
amortization expense; (ii) loss on impairment of tangible and
intangible assets; (iii) loss on disposal of assets; and (iv)
stock-based compensation expense.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190917005353/en/
Sloane & Company Erica Bartsch, 212-446-1875
Ebartsch@sloanepr.com
Alex Kovtun, 212-446-1896 Akovtun@sloanepr.com
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