Destination XL (DXLG 2.99%) is experiencing the same ill effects as much of the rest of the retail industry from rampant inflation, rising gas prices, and a disconnected supply chain.
The men's clothing store chain for big and tall consumers continues to enjoy strong sales and profit growth. It's a big turnaround for the company that two years ago found it necessary to voluntarily delist from the Nasdaq exchange because it couldn't keep its stock above $1 per share amid COVID pandemic lockdowns.
Yet despite posting solid growth numbers all along since then, Destination XL's stock remains deeply discounted, which is one of the reasons I called it my favorite growth stock this year. And after its just-released first-quarter earnings report, it looks like it's becoming a favorite of investors as well, as shares are jumping 7% on the outsized performance of the plus-sized men's retailer.
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Destination XL enjoyed a 14.5% jump in first-quarter sales, as comparable-store sales, or those locations open for at least a year, surged 19.5% from 2021 to reach $127.7 million. At the same time, profits rocketed 54% higher to $13.4 million, or $0.20 per share, compared to earnings of $8.7 million, or $0.14 per share.
While the retailer saw a use of cash in the quarter of $1.5 million versus a gain of $7.8 million last year, it was a result of building up its inventory, capital expenditures, and incentive payouts. But Destination XL is still debt-free and was able to buy back $4.8 million worth of stock, or 1 million shares, for the period.
The first quarter of 2022 marks the fifth consecutive quarter the retailer saw sales and profits expand, and it was able to do it this time while eliminating virtually all of its promotions. It's also notable the retailer has 37 fewer stores operating today than it did two years ago.
Customers are seeking out Destination XL not because they're giving away the store, one of the problems that led to the downfall of rival Jos. A. Bank years ago, but because they're serving a niche market that likes what they have to offer.
A growth story still playing out
Destination XL is showing that physical retail isn't dead, but moving to an omnichannel model has been beneficial. Comps for the direct-to-consumer channel were also up smartly 16.7% in the quarter, even as the stores saw traffic gains and more money spent on each visit.
The retailer has taken a three-pronged approach to online sales, using not only its website but also its stores as a launchpad for sales that are completed online, as well as e-commerce marketplaces for its products. Sales in its direct business have grown over 40% since 2019, though they've started to normalize this year as customers visit its stores more often.
President and CEO Harvey Kanter says that although macroeconomic and global geopolitical events warrant keeping vigilance, he notes, "Given the financial performance in the first quarter, we continue to be confident in our sales outlook for the year and are trending toward the high end of our range."
That range is $510 million to $530 million in revenue for the full fiscal year, with the adjusted EBITDA margin for fiscal 2022 forecast to be above 10%.
For a retail stock that trades at just 5 times trailing earnings, 6 times this year's estimates, a fraction of its sales and earnings growth (which is forecast to be 15% annually for the next five years), and below bargain-basement rates for the free cash flow it generates -- just 3 times -- Destination XL is still a steep bargain with plenty of growth to come.