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Destination Maternity Reports Fourth Quarter And Fiscal 2017 Results

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Destination Maternity Reports Fourth Quarter And Fiscal 2017 Results

- E-commerce sales rise 60% from prior year fourth quarter

- Comparable retail sales rise 5.2% from prior year fourth quarter

- Gross margin expands 20 basis points in fiscal 2017 from fiscal 2016

- Selling, General and Administrative expenses decline $5.2 million in fiscal 2017 - on track to exceed the Company's expectation to generate $10 million in annualized savings

PR Newswire

MOORESTOWN, N.J., April 19, 2018 /PRNewswire/ -- Destination Maternity Corporation (NASDAQ:DEST), the world's leading maternity apparel retailer, today announced financial results for the fourth quarter and full fiscal year. Fiscal 2017 ended February 3, 2018 and includes a 14-week fourth quarter and 53-week year, compared to fiscal 2016 ended January 28, 2017, which is based on a 13-week fourth quarter and 52-week year. Comparable sales exclude the impact of the additional week.

Melissa Payner-Gregor, interim Chief Executive Officer commented "Fiscal 2017 was a year of transition for the Company.  Since I stepped into the interim CEO role in early January, I have been more than impressed with how our team members have managed to maintain their focus in the face of so much change.  And, while there is much work to be done, our Company has made meaningful strides in the past year. We relaunched our four ecommerce websites in early 2017 with an increase in comparable sales in the channel of over 40%, with much of that improvement driven by major conversion improvements on all devices, particularly mobile.  The strength of the digital platform helped us deliver a 5.2% total retail comp improvement in the fourth quarter of fiscal 2017. In addition, we implemented an internal reorganization and cost cutting initiative late in fiscal 2017 which contributed a $5.2 million reduction in SG&A for the year with an expectation that the annualized savings will exceed $10 million in fiscal 2018. We also completed a refinancing of our outstanding term loan to provide greater liquidity."

Fourth Quarter Fiscal 2017 Financial Results (14 weeks ended February 3, 2018) 

  • Net sales were $105.1 million compared to $100.2 million for the prior year quarter. This increase was primarily driven by an increase in comparable retail sales as well as additional sales generated in the 53rd week.
  • Comparable sales increased 5.2%
  • Gross margin for the fourth quarter of fiscal 2017 was 50.4%, down 60 basis points over the comparable prior year quarter gross margin of 51.0%.
  • Selling, general and administrative expenses ("SG&A") for the fourth quarter of fiscal 2017 increased 5.7% to $57.0 million, compared to $53.9 million for the fourth quarter of fiscal 2016. As a percentage of net sales, SG&A increased to 54.2% for the fourth quarter of fiscal 2017 compared to 53.8% for the fourth quarter of fiscal 2016. Fiscal 2017 included an additional week of expense related to the 53rd week.
  • The Company incurred store closing, asset impairment and asset disposal expenses of $2.6 million for the fourth quarter of fiscal 2017, compared to $1.0 million for the fourth quarter of fiscal 2016.
  • Other charges during the fourth quarter of fiscal 2017 were $1.2 million, related to management and organizational changes, compared to $2.9 million in the fourth quarter of fiscal 2016.
  • Adjusted EBITDA before other charges was $0.6 million for the fourth quarter of fiscal 2017, compared to $2.1 million for the fourth quarter of fiscal 2016. Adjusted EBITDA before other charges is defined in the financial tables at the end of this press release.
  • Income tax benefit was $0.3 million for the fourth quarter of fiscal 2017 compared to an income tax provision of $25.0 million in fiscal 2016.
  • GAAP net loss was $10.2 million, or $0.73 per share. This compared to a GAAP net loss of $32.8 million, or $2.39 per share, for the fourth quarter of fiscal 2016, which included the $27.8 million non-cash income tax charge, or $2.02 per share, related to the valuation allowance against net deferred tax assets.
  • Adjusted net loss was $5.0 million, or $0.36 per share, compared to adjusted net loss of $3.2 million, or $0.23 per share for the fourth quarter of fiscal 2016. For a reconciliation of GAAP to non-GAAP financial information refer to the financial tables at the end of this press release.

Full Year Fiscal 2017 Financial Results (53 weeks ended February 3, 2018)

  • Net sales were $406.2 million compared with $433.7 million for the fiscal year ended January 28, 2017.  This decrease was primarily driven by the wind down of the Kohl's relationship, the net closure of 28 retail stores, and a decline in comparable sales.
  • Comparable sales decreased 1.5%;
  • Gross margin increased 20 basis points to 52.6% compared to 52.4% for the fiscal year ended January 28, 2017. The year-over-year increase in gross margin was driven by reduced product costs and the exit from the leased department and licensed relationships, which generated lower than average gross margins.
  • SG&A declined $5.2 million to $218.7 million, or 53.8% of net sales, compared to $223.9 million, or 51.6% of net sales for the fiscal year ended January 28, 2017. Fiscal 2017 includes SG&A expenses incurred in the 53rd week. 
  • Store closing, asset impairment and asset disposal expenses were $6.3 million, compared to $2.8 million for the fiscal year ended January 28, 2017.
  • Other charges during fiscal 2017 were $4.9 million, related to the proposed business combination, as well as management and organizational changes, compared to $4.9 million for fiscal 2016.
  • Adjusted EBITDA before other charges was $13.0 million for the fiscal year ended February 3, 2018 compared to $23.3 million for the fiscal year ended January 28, 2017.
  • Income tax provision was $0.0 million for fiscal 2017 compared to $25.0 million in fiscal 2016.
  • GAAP net loss was $21.6 million, or $1.57 per share. This compared to a GAAP net loss of $32.8 million, or $2.39 per share, for the fourth quarter of fiscal 2016, which included the $27.8 million non-cash income tax charge, or $2.02 per share, related to the valuation allowance against net deferred tax assets.
  • Adjusted net loss of $10.2 million, or $0.74 per share, compared to adjusted net loss of $1.9 million, or $0.14 per share, for the fiscal year ended January 28, 2017.

Other Fiscal Year 2017 Financial Information

  • Capital expenditures totaled $6.7 million primarily driven by investments in stores and investments to support key systems projects.
  • At February 3, 2018, inventory was $71.3 million, an increase of $2.3 million compared to $69.0 million at January 28, 2017.

Commentary on Go-Forward Strategy

Melissa Payner-Gregor, commented further:

"As we move forward, we have put into place and expect to execute the following strategies:

  • Supplying the very best product to our customers. At our core, we are a fashion company. We believe a new mom doesn't have to change her style when she is expecting. We believe that we offer highly differentiated product and on-trend style that is technically designed to fit her changing body. We feel so lucky to share a part of the most exciting time in her life.
  • Creating a more seamless and relevant omni-channel experience. We expect to bring our strengths in each respective channel to all channels. For example, while our digital experience is highly efficient we do not currently provide the level of customer service and emotional connection that is driven by our excellent in-store sales associates. We are exploring creating a more interactive and informative experience online through initiatives such as live chat, increased content and online community. As to the stores, although our level of customer service is a strength, we are seeking to identify ways to increase traffic to our stores. We are working to use our strong traffic online to drive footsteps to the stores with our buy online pickup from store initiatives as well as future initiatives, such as in-store appointment scheduling.
  • Improving our product sourcing, planning, buying and allocation. Over the past few years we have made investments in our inventory management systems, processes and personnel to drive better results from conception through replenishment. We have gained insights on which we intend to capitalize.
  • Expanding our distribution points and product category offerings. There are opportunities for us to reinvigorate our distribution network, particularly in the digital space, where we believe incremental expansion can be accomplished. This year we expect to begin offering our product in at least one more online marketplace (in addition to Macys.com) with more to come. We are also working to deepen our relationship with Amazon by transferring onto the Amazon Retail platform which will give our Amazon customers full access to Prime fulfillment. This is a meaningful growth opportunity given the majority of our sales decline from our peak in fiscal 2013 can be attributed to our declining distribution network. Furthermore, we believe positioning gives us the unique opportunity to offer our customers products that extend beyond her pregnancy to her life as a new-mom, including baby apparel, hard goods and other products of interest to the growing family. We will be diligently exploring opportunities to expand our product offering to include next stage products, initially through our digital platform utilizing a marketplace model.
  • Protecting and expanding the revenue we receive from our marketing partnerships business. We believe we have access to highly valuable customers, and we have been able to leverage this access with our third-party partners to offer customers great savings and services beyond her maternity needs. We believe we can drive incremental revenue through this channel with additional assets.
  • Working diligently every day to improve our profitability. As mentioned above, we believe that our recent reorganization and cost cutting initiatives will deliver over $10 million in run-rate savings. However, we will continue to adopt and maintain a stringent profit focused philosophy. This includes continued, rigorous review of our real estate portfolio (which has a high degree of liquidity over the next several years) as well as opportunistically cutting or investing in our operation when return-on-investment appropriate."

Commentary on Governance Matters

Barry Erdos, Chairman of the Board, commented:

"As announced previously, our Board has been actively considering its composition including pursuing the addition of new members to expand the skills and experience on the Board to accelerate Destination Maternity's path to profitable growth.   In keeping with this objective, earlier this year, Peter Longo, formerly of Macy's, joined our Board, and, in early April, the Board added Pierre Mestre, the Chairman and founder of Orchestra-Prémaman, our largest stockholder.  These additions show our Board's willingness to invite new opinions into the boardroom for the benefit of all stockholders, and that willingness continues.  As to our CEO search, the newly constituted Board is working diligently to identify and vet candidates for the permanent CEO role and expects to continue that work into this fiscal year."   

Mr. Mestre, our newest Board member, commented:

"Both before and after I became a director, the current Board and the current management team have shown real enthusiasm for a sustained focus on making Destination Maternity more profitable.  The Company has aggressively revised its strategy, including seeking to expand its distribution points as well as its product offerings, each of which has the potential to strengthen and diversify Destination Maternity's positioning in the market. 

"I am also encouraged to see the willingness with which the Board has approached refreshing its members.  As the Chairman of the Company's largest stockholder, at over 13%, I support our current Board and management team and will be voting all the shares I and my companies beneficially own in favor of the Company's slate at the upcoming annual meeting of stockholders."       

Retail Locations

The table below summarizes store opening and closing activity for the fourth quarter and full year fiscal 2017 and fiscal 2016, as well as the Company's total store, leased department and retail location count at the end of each fiscal period.


Fourth Quarter Ended


Year Ended


February 3,


January 28,


February 3,


January 28,


2018


2017


2018


2017









Store Openings (1)

0



2



7



11














Store Closings (1)

14



13



35



32














Period End Retail Location Count (1)












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