MOORESTOWN, N.J.–(BUSINESS WIRE)–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.
“Our results this quarter illustrate the ongoing headwinds facing our business. While cost savings initiatives drove reductions in SGA 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 ne 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.
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.
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.
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.
Selling, general and administrative expenses (“SGA”) 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, SGA increased 120 basis points to 53.2% vs 52.0% for the second quarter of fiscal 2018.
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).
Excludes international franchised locations.
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.
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.
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.
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.
(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.